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Public Library, Gov't Information Ctr.. 5 th Fir. 
Attn: Susan Horn, Dept. 41 



mm' 



REPORT TO THE 
SAN FRANCISCO BOARD OF SUPERVISORS 



1 o 1998 

lARV 



Follow-Up Review of the 



1995 Management Audit 



of the 



Tax Collector's Office 



December, 1998 



BOARD OF SUPERVISORS 
BUDGET ANALYST 



m 



SAN FRANCISCO 
PUBLIC LIBRARY 

REFERENCE 
BOOK 

Not to be taken from I he Library 



REF 352.13 R2995 



Report to the San 
Francisco Board of 
1998. 



SAN FRANCISCO PUBLIC LIBRARY 



3 1223 05412 9573 




CITY AND COUNTY i=*JfeJa«l, h OF SAN FRANCISCO 



BOARD OF SUPERVISORS 

BUDGET ANALYST 

1390 Market Street, Suite 1025, San Francisco, CA 94102 (415) 554-7642 
FAX (415) 252-0461 



December 1, 1998 



Honorable Barbara Kaufman, President 

and Members of the Board of Supervisors 
City and County of San Francisco 
Room 410, Veterans Building 
401 Van Ness Avenue 
San Francisco, California 94102 

Dear President Kaufman and Members of the Board of Supervisors: 

Transmitted herewith is the Budget Analyst's Follow-up Review of the 1995 
Management Audit of the San Francisco Tax Collector's Office. 

In April of 1995, the Budget Analyst completed a Management Audit of the Tax 
Collector's Office, which included eleven findings and 81 recommendations. In 
November of 1997, the Board of Supervisors directed the Budget Analyst to conduct 
a follow-up performance review of the Tax Collector's Office to determine the 
progress and status of the implementation of the recommendations contained in the 
Budget Analyst's Management Audit Report of 1995. The Board of Supervisors 
requested both the 1995 Management Audit and this Follow-up Review in order to 
assist the Tax Collector in his efforts to improve the efficiency and effectiveness of 
his Office. 

Our review found that the Tax Collector's Office has fully or partially implemented 
54 of the 81 recommendations made by the Budget Analyst in the 1995 
Management Audit Report and has made significant progress in solving the 
problems identified at that time. In fact, the number of registered businesses in San 
Francisco has increased from 57,885 in FY 1994-95 to 70,467 in FY* 1997-98, an 
increase of 12,582 businesses, or approximately 22 percent. Business Payroll and 



REF 352. 13 R2995 



deport to the San 



3 1223 05412 9573 
S.F. PUBLIC LIBRARY 



Honorable Barbara Kaufman, President 

and Members of the Board of Supervisors 
City and County of San Francisco 
December 1, 1998 
Page 2 

Gross Receipts Taxes and Business Registration Fees have increased from 
$159,020,000 in FY 1995-96 to $225,745,000 m FY 1997-98, an increase of 
$66,725,000, or approximately 42 percent since the audit was completed. While the 
Tax Collector and the Budget Analyst acknowledge that these percentage changes 
during these periods are related to San Francisco's economic growth, the Tax 
Collector also acknowledges that, although the specific amount cannot be separated, 
"a substantial percentage must be linked to improvements enacted in accordance 
with the 1995 Audit recommendations". Furthermore, the Tax Collector reports 
that the enactment of the Budget Analyst's recommendation in Section IV. 2.1 to 
consolidate the Investigations Division, the Bureau of Delinquent Revenue and the 
Legal Division under a single manager has produced substantial benefits to the 
Department and the City and notes that the Bureau of Delinquent Revenue 
recovered $1,981,678 in FY 1994-95 in contrast to the recovery of $14,306,805 in 
delinquent revenue in FY 1997-98, an increase of $12,325,127, or more than 621 
percent. 

This report identifies each of the recommendations made in 1995 and discusses the 
Tax Collector's progress in implementing each of these recommendations. In some 
cases, more than one recommendation is identified and discussed within a section, 
to avoid redundancy. This report also contains additional recommendations to 
improve the efficiency of operations, improve internal controls, reduce costs and 
increase revenues in areas where we determined that improvements could still be 
made. 

For example, during the FY 1998-99 budget review, the Treasurer and Tax 
Collector specifically requested that the Budget Analyst reexamine the need to 
create three new positions in the Tax Collector's Office. As shown in Section III. 1 of 
this report, the Budget Analyst determined that the three new accounting positions 
added during the budget process to the Business Tax Section should be sufficient to 
fully relieve the auditors who are assisting accounting staff and therefore 
recommended that the two additional accounting positions requested not be created 
at this time. In addition, as contained in Section IV. 2 of this report, the Budget 
Analyst reviewed the need for one new 1408 Principal Clerk position in the 
Delinquent Revenue Section and found that the final agreements between the Tax 
Collector's Office and the Trial Courts and Water Department to take on new 
collections activities from the Trial Courts and the Water Department are not yet in 
place and therefore recommended that this position also not be created at this time. 
As a result, the Budget Analyst is not recommending that any new positions be 
created in the Tax Collector's Office at this time. 



Office of the Budget Analyst 



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Honorable Barbara Kaufman, President 

and Members of the Board of Supervisors 
City and County of San Francisco 
December 1, 1998 
Page 3 

The Tax Collector's written response to our report is attached, beginning on page 
68. As provided in this response in almost all cases, the Tax Collector concurs with 
the recommendations and comments of the Budget Analyst. Those areas of 
difference or further clarification are detailed in the Tax Collectors response. 

For example, regarding dog licenses, although the Tax Collector's Office states that 
they "agree with the Budget Analyst's view that dog owners and the community at 
large may be better served if the entire function is transferred under the 
supervision of Animal Care and Control rather than dividing the function" between 
Animal Care and Control and the Tax Collector's Office, the Tax Collector's Office 
does not agree with the recommendation by the Budget Analyst to therefore 
transfer the commensurate staff and budget from the Tax Collector's Office to the 
Animal Care and Control Department. The Animal Care and Control Department 
submitted a written response to Section II. 2: Dog Licenses of this report, which 
begins on page 79. As provided in this response, the Animal Care and Control 
Department fully concurs with the Budget Analyst's recommendations concerning 
the transfer of dog license functions from the Tax Collector's Office to the Animal 
Care and Control Department. The Budget Analyst continues to recommend such 
transfer. 

The following is a summary of the implementation status of the 1995 Management 
Audit Report recommendations and our follow-up recommendations by section. 



Section 1.1: Accounting and Statements 

The 1995 Management Audit found that accounting and data entry functions were 
distributed throughout the divisions in the Tax Collector's Office. Also, the Audit 
found that collections efforts were hampered by the nearly four month process of 
entering Business Tax Statements into the Business Tax System (BTS) and that a 
fragmented check control process took time away from revenue producing activities. 
To remedy these problems, the Budget Analyst recommended that a consolidated 
Accounting Division be established to improve efficiency. 

The 1995 Management Audit identified several ways in which the tracking of 
delinquent accounts could be improved, including maximizing use of the BTS 
system to facilitate calculation of interest and penalties, thereby eliminating 
manual calculation by multiple Divisions. The Budget Analyst also recommended 
that the proposed Accounting Division cross-check delinquent Unsecured Personal 
Property and Business Tax Accounts so that taxpayers can be notified of both 
delinquencies simultaneously, and Collections Officers could pursue full payment. 

Office of the Budget Analyst 



Honorable Barbara Kaufman, President 

and Members of the Board of Supervisors 
City and County of San Francisco 
December 1, 1998 
Page 4 

Finally, in 1995, the Budget Analyst reported that the Assessors Office was 
responsible for substantial delays in posting reassessments in property values to 
the Tax Rolls. As a result, the Tax Collector must process numerous check returns 
and subsequent refunds, as taxpayers submit initial payments for reassessed 
amounts that cannot be accepted by the Tax Collector until they are reflected on the 
Tax Rolls. 

Our follow-up review found that the Tax Collector has taken steps to remedy the 
fragmentation of accounting functions and related deficiencies in this area by 
implementing alternative solutions to those which were recommended in the 1995 
Management Audit. The Tax Collector has established a separate Accounting 
Services Section as recommended, however, the Section has limited responsibilities 
and all Business Tax related accounting functions remain in the Business Tax 
Division. The Tax Collector has not centralized all accounting activities within the 
new Accounting Services Section, but the Tax Collector has made significant 
improvements in addressing problems such as generating more timely delinquency 
notifications, better tracking of delinquent accounts, and consolidated collections 
procedures through changes in the Business Tax Division, the Bureau of Delinquent 
Revenue/Investigations Section and the Cashier Section. 

In addition, the Federal Social Security Act provides that the Tax Collector may 
require a taxpayer to disclose his or her social security number for the purpose of 
establishing the identification of individuals. 

Recommendation 

The Budget Analyst recommends that the Tax Collector include a space for 
taxpayers to voluntarily provide a social security number on all taxpayer forms, 
where appropriate, in order to assist in collecting delinquent accounts. To be more 
useful to the Tax Collector's Office, the Assessor's Office should also collect social 
security numbers for unsecured property and share secured property social security 
number data with the Tax Collector's Office. 



Section 1.2: Automation 

The 1995 Management Audit reported that the Tax Collector had invested more 
than $3.75 million in new automated systems for maintaining taxpayer account 
data since 1992. At that time, the Tax Collector's Office had recently implemented 
a new mainframe Business Tax System (BTS) and Unsecured Personal Property 
System (UPP), and had begun migration from a Wang mini-computer system to a 

Office of the Budget Analyst 



Honorable Barbara Kaufman. President 

and Members of the Board of Supervisors 
City and County of San Francisco 
December 1, 1998 
Page 5 

Local Area Network (LAN). The 1995 Management Audit findings were 
concentrated in three areas: (1) insufficient training of and communications with 
end-users of the new automated systems; (2) overly restrictive and inefficient 
security policies; and (3) a need for linkages among various databases maintained 
by the Tax Collector, Assessor and Controller. 

Our follow-up review found that the Tax Collector has implemented the majority of 
the Budget Analyst's recommendations m the automation area. The Tax Collector 
now reports that the office has completed its migration to the LAN and staff have 
been adequately trained in the use of personal computer applications. Management 
Information Systems (MIS) staff in the department has grown from one in 1995 to 
four in 1998 and have worked to improve the office's automated systems. The Tax 
Collector advises that steps have been taken to increase information access to 
employees who need it to perform their jobs efficiently while adhering to procedures 
to protect the automated systems from security abuses. 

The Tax Collector's Office is continuing work to link its automated systems. An 
integrated system for secured and unsecured property, INPACT, is scheduled to be 
installed in 1999. which will link the offices of the Treasurer/Tax Collector, 
Assessor, Controller and Recorder. The Tax Collector has implemented many of the 
Budget Analyst's recommendations for improvements to the Business Tax System 
(BTS). However, it remains a labor intensive system and will not link to any of the 
Tax Collector's other automated systems. The Tax Collector's Office advises that 
options for replacement of the BTS, which was installed in 1991. are being studied 
and it is planned that the system will be replaced within four years. 

Recommendation 

The Budget Analyst recommends that the Tax Collector select a BTS replacement 
system which is capable of interfacing with the other automated systems in the 
Tax Collector's Office. 



Section 1.3: Taxpayer Assistance 

In 1995, the Tax Collector's Office provided assistance to taxpayers separately in its 
divisions by rotating staff who performed other functions within their respective 
divisions. Problems included inadequate staffing of telephones, inconvenience to 
taxpayers by requiring taxpayers to go from division to division, providing of 
incorrect information, long lines, and communication problems due to language 
differences. At the time our Audit was conducted, the Tax Collector was taking 

Office of the Budget Analyst 



Honorable Barbara Kaufman, President 

and Members of the Board of Supervisors 
City and County of San Francisco 
December 1, 1998 
Page 6 

steps to remedy these problems and follow the recommendations of a task force 
("Task Force Bravo") convened by the Tax Collector. The Budget Analyst 
recommended that the Tax Collector's Office establish a dedicated, knowledgeable 
and fully staffed centralized Taxpayer Assistance Unit to improve customer service. 

Our 1998 follow-up review found that the Tax Collector's Office has made many 
improvements m this area. The Tax Collector's Office established a Taxpayer 
Assistance Unit in August of 1996, comprised of a total of eleven employees. The 
Taxpayer Assistance Unit staff have expertise in all of the various taxpayer areas 
and have been cross-trained to have a full understanding of all of the functions and 
requirements of the various divisions within the Tax Collector's Office, including 
the various computer systems. The quality of service to taxpayers can now be 
monitored, user surveys conducted and an evaluation of such service measures 
used to further improve taxpayer services. Self-service kiosks for taxpayers are 
anticipated to be operational after City Hall reopens in January of 1999. 

Recommendations 

To further improve taxpayer assistance services, the Budget Analyst recommends 
that the Tax Collector's Office develop an interactive voice response system for 
taxpayers to automatically generate Business Tax Statements. This would 
significantly reduce the volume of requests from taxpayers to the Taxpayers 
Assistance Unit staff, who currently separately print these Business Tax 
Statements for each taxpayer. As part of this effort, the Tax Collector's Office 
should consider installing a coin-operated self-service copier machine for use by the 
public. 



Section II. 1: Licensing 

The 1995 Management Audit found that the License Division prepared and mailed 
a separate bill for each license, even if an individual or business owed more than 
one license fee. Also, the Property Tax bill and the Business Registration bill are 
prepared and mailed separately from licenses, so that most individuals and 
businesses receive more than one bill from the Tax Collector each year. The Audit 
recommended that the Tax Collector reorganize its licensing functions, by 
eliminating the License Division and merging these activities into other divisions, 
and begin issuing consolidated bills. It was estimated that the reallocation of 
licensing responsibilities would result in improved customer service and reduced 
administrative costs of $262,142 the first year and $487,622 in following years. 



Office of the Budget Analyst 



Honorable Barbara Kaufman, President 

and Members of the Board of Supervisors 
City and County of San Francisco 
December 1, 1998 
Page 7 

The Tax Collector's Office has consolidated Rent Board fees and Apartment and 
Hotel License fees with Property Tax bills. These now appear on a consolidated 
Property Tax bill as special assessments, and the Tax Collector's Office estimates 
that the number of separate billings sent to property owners has been reduced by 
70,000. Furthermore, placement of the Rent Board fees on the Property Tax bill 
has significantly reduced the Rent Board fee delinquency rate from approximately 
40 percent delinquency to less than two percent. 

In April of 1998, the Tax Collector's Office eliminated the License Division bv 
merging a portion of these activities with the Property Tax Division. The Tax 
Collector's Office has issued a consolidated Property Tax bill, as recommended by 
the Budget Analyst. However, the Budget Analyst's recommendation to eliminate 
the License Division was premised on the recommendation that the Tax Collector's 
Office consolidate the Business Registration bill with the Business License fees. To 
date, the Tax Collector's Office has not consolidated the Business Registration bill 
with the Business License fees. 

Although the Tax Collector does not believe that License and Business Tax 
information systems are compatible and thus ready to be merged, the Budget 
Analyst still believes that there would be considerable benefits to the Tax 
Collector's Office and the business taxpayer if the Tax Collector were to begin 
working toward consolidating these activities. There would be a greater convenience 
for the taxpayer in making payments to the City. Additional annual revenue of $25 
to $500 per business could be realized by the City in Business Registration revenue 
alone, if a consolidated License Division identified businesses that the separate 
Business Tax Division has not identified. Gross Receipts and Payroll Taxes would 
also be increased, if additional large businesses were identified through such 
consolidation. Furthermore, the City's policies to enhance public health and safety 
would be better served by consolidation because unlicensed businesses would be 
identified and inspected by the user departments, such as the Department of Public 
Health and the Fire Department. 

Recommendations 

To further this effort, the Budget Analyst recommends that the Tax Collector 
should initially conduct a meeting with the primary enforcement Departments, 
including the Department of Public Health, the Department of Public Works, the 
Police Department and the Fire Department, in conjunction with the City 
Attorney's Office, to collectively identify problems with coordinating the license fees 
required from businesses throughout the City. Steps should then be taken to 
coordinate, review, simplify and revise the necessary City license fee ordinances for 

Office of the Budget Analyst 



Honorable Barbara Kaufman, President 

and Members of the Board of Supervisors 
City and County of San Francisco 
December 1, 1998 
Page 8 

businesses in the City m order to develop consistent licensing procedures and 
schedules to enable consolidation with the Business Tax Division. 



Section II. 2: Dog Licenses 

The 1995 Management Audit documented that both the Department of Animal Care 
and Control and the License Division of the Tax Collector's Office issue initial dog 
licenses, upon application by the dog owner. The License Division of the Tax 
Collector's Office then bills individuals and collects revenues for the dog license 
renewals. However, neither the Department of Animal Care and Control nor the 
Tax Collector provide an Animal Licensing Program that more aggressively 
identifies pet owners and requires them to license their animals. Instead, these 
Departments issue dog licenses based solely on customer-initiated contacts. As a 
result, of a currently estimated total of approximately 100,000 dogs in San 
Francisco, only approximately ten percent are registered. Furthermore, the Audit 
found that San Francisco charged a dog license fee considerably below the average 
charged by other Bay Area jurisdictions. The Management Audit therefore 
recommended an increase in the dog license fees and that a more aggressive Animal 
Licensing Program be consolidated in the Department of Animal Care and Control. 

In November of 1996. the Board of Supervisors approved an increase in the annual 
dog license fees from S12 to $16 for unaltered dogs and from $6 to $8 for altered 
dogs. In addition, since 1996, the Department of Animal Care and Control has 
included proposals in its annual budgets to take over the administration of the Dog 
License function from the Tax Collector's Office, as had been recommended by the 
Budget Analyst's Office. However, the proposed transfer has not been approved by 
the Mayor's Office. 

In response to our recommendation, the Tax Collector's Office advises that since 
they do not budget a full-time position to process dog licenses, they cannot reduce 
their staff and transfer such responsibilities, as recommended by the Budget 
Analyst. However, a current review of the tasks and staff required to process dog 
licenses by the Tax Collector's Office indicates that a total of approximately 3.333 
hours requiring 1.6 FTE positions are presently allocated to these activities. The 
Department of Animal Care and Control indicates that they have not been able to 
assume the increased dog licensing functions since the Department has not been 
able to increase their staff, as had been recommended by the Budget Analyst. 



Office of the Budget Analyst 



Honorable Barbara Kaufman, President 

and Members of the Board of Supervisors 
City and County of San Francisco 
December 1, 1998 
Page 9 

Recommendations 

The Budget Analyst continues to recommend that the administration of all of the 
dog licensing functions be transferred from the Tax Collector's Office to the 
Department of Animal Care and Control, in order to create a more effective Animal 
Licensing Program for the City. This recommendation is supported by the 
Department of Animal Care and Control. A current review of the costs indicate that 
a total of approximately $80,000 of salary and related fringe benefits and another 
approximately $10,000 for materials and supplies, for a total of approximately 
$90,000 are related to the processing of dog licenses by the Tax Collector's Office. 
These funds could be transferred to the Department of Animal Care and Control to 
administer the proposed Animal Licensing Program. 

The Board of Supervisors also recently approved two ordinances (Files 98-1402 and 
98-1403) that would (1) require that veterinarians in San Francisco provide the 
names and addresses of pet owners to the Tax Collector's Office on dogs that receive 
rabies vaccinations and (2) impose a penalty of not less than $25 nor more than $50 
for violation of this provision. Administrative responsibility for contacting the 
identified dog owners and issuing the licenses would continue to be under the Tax 
Collector's Office. The Budget Analyst recommends that if existing dog licensing 
functions are transferred to the Department of Animal Care and Control, as 
recommended above, these recently approved ordinances should be similarly 
amended to effect such a transfer. 



Section III.l: Business Tax Auditing 

The 1995 Management Audit found that, in addition to performing audit functions, 
the auditors in the Business Tax Division were engaged in collections activities 
which instead should be performed by a Collections Division. We also found that 
audit productivity had declined substantially over a three year period due to a 
variety of factors. Finally, we concluded that the selection of businesses to audit 
was carried out on an ad hoc basis, without careful prioritization, and that 
improved internal controls in the areas of audit assignments and account servicing 
were needed. 

Our 1998 follow-up review found that the Tax Collector's Office has made some 
improvements in this area, such as transferring the main responsibility for 
identification of unregistered businesses and collection of delinquent Business 
Taxes from the Business Tax Division to the Bureau of Delinquent Revenue and 
establishing the Taxpayer Assistance Unit to routinely answer Business Tax 

Office of the Budget Analyst 



Honorable Barbara Kaufman, President 

and Members of the Board of Supervisors 
City and County of San Francisco 
December 1, 1998 
Page 10 

inquiries. However, many issues have still not been addressed, such as continuing 
the practice of auditors pursuing audit collection activities, diverting auditors to do 
accounting work, not yet refining the automated audit selection process to make full 
use of the available information and not yet establishing a policy to balance audit 
goals and objectives. 

Recommendations 

The Budget Analyst continues to recommend that delinquent accounts identified by 
Auditors within the Business Tax Division should be forwarded to the Bureau of 
Delinquent Revenue to pursue immediate collection activities, rather than 
conducting a full audit of these businesses. In addition, the Budget Analyst 
continues to recommend that the Business Tax Division discontinue diverting 
auditors from their audit assignments in order to do accounting work within the 
Division. The Board of Supervisors approved three new positions in the FY 1998-99 
budget for this purpose, which should alleviate this problem. 

Although the Board of Supervisors approved the creation of three of five requested 
accounting positions during the FY 1998-99 budget review, the Budget Analyst 
agreed to review the need for the two denied positions during this audit update. Our 
review indicates that the three new accounting positions added during the budget 
process should be sufficient to fully relieve the auditors who are assisting the 
accounting staff on both a seasonal and as-needed basis. Therefore, the Budget 
Analyst recommends that the two additional accounting positions (one 1632 Senior 
Account Clerk and one 1652 Senior Accountant) requested by the Tax Collector's 
Office in the FY 1998-99 budget should not be created at this time. 

The Budget Analyst continues to recommend that the Chief Auditor refine the 
automated audit selection process to make full use of available information. Audit 
selection should reflect the Tax Collector's priorities in terms of the number selected 
for their revenue potential, and the number selected based on a representative 
sampling of business types. The automated process should be designed to select a 
realistic number of audits, taking into account that a projected (and limited) 
number of unregistered business audits, delinquent account audits and other 
special purpose audits may be required during the year, chiefly to enable the Tax 
Collector to take legal action on these accounts. The Budget Analyst also continues 
to recommend that the Tax Collector establish a policy regarding the balance 
between the audit goals of revenue maximization and encouragement of voluntary 
business taxpayer compliance. 



Office of the Budget Analyst 



Honorable Barbara Kaufman, President 

and Members of the Board of Supervisors 
City and County of San Francisco 
December 1. 1998 
Page 11 



Section HI. 2: Review of the Citv Park Audit 

In 1995, the Budget Analyst's review of an audit conducted by the audit staff of the 
Business Tax Division found that audit staff: (1) used methodology that is not 
supported by work papers, which resulted in an audited deficiency billing that was 
$35,574 less than if the existing methodology developed by the City's Department of 
Public Works (DPW) had been used; and (2) neglected to assemble the complete 
working papers necessary to establish an audit trail, to permit thorough supervision 
by senior staff auditors and to permit review by any experienced auditor. 

Our follow-up review found that the Tax Collector's Office conducted a second audit 
which reached the same conclusion as their initial audit, such that the Tax 
Collector did not bill City Park for any additional back taxes, penalties or accrued 
interest. The Business Tax Division has conducted two training courses for auditors 
and is currently rewriting audit staff procedures, but is not using outside resources, 
such as the United States General Accounting Office (GAO) documents or other 
sample audit policies and procedure manuals from the Internal Revenue Service 
(IRS) and other cities. As a result, the Tax Collector's Office may not fully document 
the range and detail of audit policies and procedures. The Chief Auditor has also 
not conducted evaluations of the Principal Auditors annually based on both the 
productivity of their audit teams and the quality of the audits completed. 

Recommendations 

The Budget Analyst continues to recommend that the Chief Auditor direct the 1822 
Administrative Analyst to assemble sample audit policies and procedures manuals 
from the IRS and other cities, as well as to consult the GAO Government Auditing 
Standards 1994 Revision. This staff person should also be directed to revise and 
enhance the existing audit procedural guides, and present the new guides to audit 
staff m a form which encourages the exchange of ideas regarding the 
implementation of the new procedures. The Budget Analyst also recommends that 
the Chief Auditor include an evaluation of both the productivity and the quality of 
audits performed by each audit team in an annual performance evaluation of each 
Principal Auditor who supervises the audit teams. 

Section HI. 3: Business Registration 

The 1995 Management Audit found that no unit in the Tax Collector's Office had 
clear responsibility for identifying all businesses operating in the City and ensuring 
that all businesses filed an annual Business Registration Certificate. The Budget 

Office of the Budget Analyst 



Honorable Barbara Kaufman, President 

and Members of the Board of Supervisors 
City and County of San Francisco 
December 1, 1998 
Page 12 

Analyst calculated that the number of unregistered firms doing business in the City 
might be as low as 9,000 or as high as 53.000. As a result, the Budget Analyst 
estimated that the City was losing up to $46.8 million annually in Business 
Registration Fees in addition to an estimated $14.3 annually in Gross Receipts and 
Payroll Taxes. The 1995 Management Audit Report recommended that the Tax 
Collector establish a Business Identification Unit in the Business Tax Division, 
with responsibility for identifying and registering businesses and tracking all 
identified businesses to ensure that all firms which do business in San Francisco 
actually register with the City. 

Our follow-up review found that the Tax Collector's Office has made significant 
improvements in this area. The Tax Collector has placed responsibility for 
identifying and registering new and unregistered businesses with both the Business 
Tax/Clearance Unit and the Investigations Unit of the Bureau of Delinquent 
Revenue/Investigations Section. According to the Tax Collector, in 1997, 
approximately 500 businesses which were not in voluntary compliance were 
registered as a result of m-house and field survey activities by this unit. 

Recommendations 

The Budget Analyst continues to recommend that the Tax Collector report to the 
Board of Supervisors annually about the accomplishments in the area of new 
business identification and registration, including the number of businesses 
identified and registered, total revenues from registration and total revenues from 
business taxes collected from such businesses. 



Section III. 4: Taxicab Driver Status 

Taxicab drivers may either be categorized as independent contractors or as 
employees of individual taxicab companies. If they are classified as independent 
contractors, they must register with the Tax Collector and pay the City's annual 
Business Registration Fee. If they are classified as employees, the taxicab company 
with which they are associated must (1) pay the City's annual Business 
Registration Fee and (2) include such employees in their payroll totals for purposes 
of calculating the Payroll and Gross Receipts Taxes which may be due to the City. 
At the time of the 1995 Management Audit, the Tax Collector had not provided 
guidelines regarding the classification of taxicab drivers and, as a result, the City 
was receiving no Payroll or Gross Receipts Tax revenues from this source, estimated 
at $702,750 to SI, 376, 700 annually. The Budget Analyst recommended that a short 



Office of the Budget Analyst 



Honorable Barbara Kaufman, President 

and Members of the Board of Supervisors 
City and County of San Francisco 
December 1, 1998 
Page 13 

checklist be developed for taxicab companies to use to determine on a case by case 
basis whether drivers should be classified as employees or independent contractors. 

On August 13, 1996, the Tax Collector submitted a report to the Mayor containing 
several alternatives and options for consideration as to how taxicab drivers should 
be classified. The Tax Collector recommended that, in lieu of classifying drivers as 
either independent contractors or employees, the City should impose a special cab 
rental fee which would amount to a maximum of $624,150 in additional City 
revenues annually. 

To date, no action has been taken on the recommendations contained in the Tax 
Collector's 1996 report. However, legislation was recently approved by the Board of 
Supervisors (File No. 98-1381) establishing procedures for taxicab drivers to 
petition for employee status and prohibiting independent contractors as drivers, 
upon acceptance of such a petition. 

Recommendations 

Given the Board of Supervisors approval of the recent legislation, the Tax 
Collector's Office should carefully track the petitions submitted by taxicab drivers 
for employee status. The Tax Collector's Office can then require taxicab companies 
to report all driver earnings as part of the computation of Payroll Taxes owed by the 
taxicab companies to the City. The Tax Collector's Office estimates that the City 
would realize $769,500 in additional annual revenues from such Payroll Taxes. 

Section rV.l: Delinquent Collections Process: Business Tax 

In 1995, the Budget Analyst estimated that approximately 31 percent of all San 
Francisco businesses do not file a Business Tax Statement with the Tax Collector's 
Office as required. Our recommendations included streamlining and improving the 
notification and collection system for delinquent accounts; and increasing penalties 
for non-filers. 

Our follow-up review found that the Tax Collector has made several improvements 
in the notification and collection system for non-filers, including sending out 
additional notices and improving the method used to estimate delinquent taxes. 
However, the time elapsed between determination of non-filers, estimating the 
amount of taxes owed, and referral to collections has not been shortened. Finally, as 
recommended by the Budget Analyst, the Tax Collector submitted legislation to 
change the penalty schedule for non-filers in order to increase taxpayer compliance. 
This legislation was approved by the Board of Supervisors in late 1997. 

Office of the Budget Analyst 



Honorable Barbara Kaufman, President 

and Members of the Board of Supervisors 
City and County of San Francisco 
December 1, 1998 
Page 14 



Recommendation 



The Budget Analyst recommends that the Tax Collector continue to work to shorten 
the timeframe between Business Tax Statement due date, determination of non- 
filers, estimation of taxes owed, and referral to collections and thus increase the 
likelihood of collection. 



Section rV.2: Consolidated Collections Process 

The 1995 Management Audit Report cited various problems with the Tax Collector's 
methods of collecting delinquent revenue. At that time, three separate divisions of 
the Tax Collector's Office were responsible for delinquent revenue collection. If an 
account holder owed more than one type of delinquent revenue, collections 
personnel pursued these various outstanding debts separately. The Tax Collector's 
Office was found to use labor intensive collections methods such as in-person visits 
before making phone calls and sending notifications of delinquency. Furthermore, 
the audit found that the Tax Collector had not established a prioritization system to 
ensure that accounts that would likely result in the highest return were given high 
priority. 

During this follow-up review, we found that the Tax Collector had consolidated the 
Bureau of Delinquent Revenue and the Investigations Division under one manager, 
as recommended by the Budget Analyst. Within this new Bureau of Delinquent 
Revenue/Investigations Section, personnel have been trained on the various 
automated systems to cross check and identify all delinquent taxes owed by an 
individual accountholder. Additionally, the new automated collections system, 
CUBS, automatically prioritizes delinquent accounts. These changes have resulted 
in a significantly more integrated and efficient collections process than the one in 
place during the 1995 Management Audit. Finally, in accordance with the Budget 
Analyst's recommendations, in December of 1997, the Board of Supervisors 
approved a package of ordinances that include provisions which grant the Tax 
Collector expanded powers to recover delinquent Business Taxes. 

Recommendation 

During the FY 1998-99 budget review, the Board of Supervisors requested that the 
Budget Analyst evaluate the need for one new 1408 Principal Clerk in the Bureau 
of Delinquent Revenue/Investigations Section of the Tax Collector's Office during 
this audit update. The Tax Collector's Office reports that the position is needed 

Office of the Budget Analyst 



Honorable Barbara Kaufman. President 

and Members of the Board of Supervisors 
City and County of San Francisco 
December 1, 1998 
Page 15 

because the Section will soon be taking over collections activities from the Trial 
Courts and Water Department. Our review found that the final agreements 
between the Trial Courts and the Water Department to take on these new 
responsibilities are not yet in place. Therefore, it is recommended that the one new 
1408 Principal Clerk position not be created at this time. 

The Budget Analyst would like to acknowledge and thank the management and 
staff of the Treasurer and Tax Collector's Office for their cooperation during the 
course of this review. Without their willing assistance, our task would have been 
much more difficult. 



Respectfully Submitted, 




[arvey M. Rose 
Budget Analyst 

cc: Supervisor Ammiano 
Supervisor Bierman 
Supervisor Brown 
Supervisor Katz 
Supervisor Leno 
Supervisor Medina 
Supervisor Newsom 
Supervisor Teng 
Supervisor Yaki 
Supervisor Yee 
Clerk of the Board 
Treasurer 
Tax Collector 
Controller 
Gail Feldman 
Matthew Hymel 
Stephen Kawa 
Ted Lakev 



Office of the Budget Analyst 



Table of Contents 

Page 

INTRODUCTION 1 

SECTION I: TAX COLLECTOR GENERAL OPERATIONS 

Section LI: Accounting and Statements 5 

Section 1.2: Automation 13 

Section 1.3: Taxpayer Assistance 19 

SECTION II: CONSOLIDATION AND SEPARATION OF LICENSING 

Section II. 1: Licensing 25 

Section II. 2: Dog Licenses 33 

SECTION III: BUSINESS TAXES AND REGISTRATION 

Section III. 1 : Business Tax Auditing 38 

Section III. 2: Review of theCity Park Audit 47 

Section III. 3: Business Registration 51 

Section III. 4: Taxicab Driver Status 55 

SECTION rV: COLLECTIONS 

Section IV. 1: Delinquent Collections Process: Business Tax 58 

Section IV. 2: Consolidated Collections Process 62 

RESPONSE FROM THE TAX COLLECTOR 68 

RESPONSE FROM ANIMAL CARE AND CONTROL 79 



Introduction 



In April of 1995, the Budget Analyst completed a Management Audit of the Tax 
Collector's Office, which included eleven findings and 81 recommendations. In 
November of 1997, the Board of Supervisors directed the Budget Analyst to conduct 
a follow-up performance review of the Tax Collector's Office to determine the 
progress and status of the implementation of the recommendations contained in the 
Budget Analyst's Management Audit Report of 1995. The Board of Supervisors 
requested both the 1995 Management Audit and this Follow-up Review in order to 
assist the Tax Collector in his efforts to improve the efficiency and effectiveness of 
his Office. 

This Follow-up Review identifies each of the recommendations made in 1995 and 
discusses the Tax Collector's progress, in implementing each of these 
recommendations. In some cases, more than one recommendation is identified and 
discussed within a section, to avoid redundancy. This report also contains 
additional recommendations to improve the efficiency of operations, improve 
internal controls, reduce costs and increase revenues in areas where we determined 
that improvements could still be made. 

The Tax Collector's written response to our report is attached, beginning on page 
68. The Animal Care and Control Department has also provided a written response 
to Section II. 2: Dog Licenses of our report, which begins on page 79. 

Overview of the Tax Collector Operations 

The Tax Collector's Office is a division of the Treasurer's Department. The 
Treasurer is an elected official, and the Tax Collector, with the assistance of an 
Assistant Tax Collector, is responsible for the collection, receipt and deposit of all 
monies for taxes, licenses, and other fees due to the City and County, (except the 
sales and real property transfer taxes), amounting to over $1 billion annually. Also, 
the Tax Collector collects delinquent accounts due to all City departments. These 
responsibilities of the Tax Collector are specified by the City's Charter. 

The Tax Collector's Office: 

■ Identifies all businesses that must register, bills such businesses, collects and 
deposits business registration fees, and issues Business Registration 
Certificates; 

■ Processes City business tax returns, collects and deposits business taxes, 
reviews and audits business tax returns, and pursues delinquent business tax 
collection; 

■ Administers business and individual license renewals for six user departments, 
including the Police Department, Fire Department, Department of Public 

Office of the Budget Analyst 



Introduction 



Health, Department of Animal Care and Control, Rent Board and Department of 
Public Works. License administration includes billing, processing, license 
issuance, and delinquent revenue collection; 

■ Collects and deposits delinquent fees for service for all City departments, 
including in-house collection and collection contract management. The largest 
user department for this service is San Francisco General Hospital; and 

■ Administers property tax collection and special assessment district taxes that 
are attached to property. 

The Tax Collector is responsible for collecting all taxes, fees and licenses, except the 
sales tax (which is collected by the State) and the real estate transfer tax (which is 
remitted to the Recorder). The following table indicates the types of revenue 
collected by the Tax Collector, and the amount of revenue collected in that category 
for FY 1993-94 and FY 1997-98. This table does not include delinquent revenues 
collected by the Tax Collector for other City departments. 



Revenue Collected by the Tax Collector 
FY 1993-94 and FY 1997-98 



PROPERTY TAXES 
Real Estate 

Unsecured Personal Property 
Total Property Taxes 

BUSINESS TAXES 
Gross Receipts Tax 
Payroll Tax 

Business Registration Tax 
Total Business Taxes 

OTHER LOCAL FEES AND TAXES 
License Fees 
Hotel Room Tax 
Utility Users Tax 
Parking Tax 
Franchise Tax 
Admission Tax 
Vehicle Renter Tax 
Tax Redemption 
Emergency (911) Tax 
Miscellaneous 

Total Other Local Taxes 

TOTAL REVENUES COLLECTED BY THE TAX COLLECTOR 



Actual 


Actual 


FY 1993-94 


FY 1997-98 


$597,500,193 


$669,877,959 


66.933.278 


68,118.255 


S664.433.471 


$737,996,214 


$ 24,946,252 


$ 31,481,832 


149,900,725 


184.131,871 


7.928.377 


10.131.496 


$182,775,354 


$225,745,199 


$ 9,645,558 


$ 5,569.589 


95,901,142 


152,403,416 


43,543,584 


55,957,605 


34,758,055 


42,385.587 


106.336,302 


139,175,601 


2,276,205 


3,204,354 


813,900 





24,094.271 


17,975,002 





7,776,312 


107.577 


907.418 


$317,476,594 


$425,354,884 


1,164.685,419 


$1,389,096,297 



As indicated above, the Tax Collector received and processed payment for a total of 
approximately $1,165 billion during FY 1993-94 in property taxes, business taxes, 



Office of the Budget Analyst 



Introduction 



and other local fees and taxes. In FY 1997-98, the Tax Collector's collected 
payments were $1,389 billion or an increase of $224 million, approximately 19 
percent, over FY 1993-94 payments. 

Organization of the Tax Collector's Office 

At the time the Management Audit was conducted in 1995, the Tax Collector's 
Office was organized into eight divisions under the Tax Collector and the Assistant 
Tax Collector: (1) Administration; (2) Business Tax; (3) License; (4) Cashier; (5) 
Delinquent Revenue; (6) Property Tax; (7) Investigations; and (8) Legal. As a result 
of the recommendations of the Budget Analyst and an internal task force convened 
by the Tax Collector's Office, two new divisions have been created and four divisions 
have been merged into two new divisions. 

Specifically, the Tax Collector created a new Taxpayer Assistance Section and 
Accounting Services Section, merged the Bureau of Delinquent Revenue with the 
Investigations Section, and merged the Property Tax Section with the Licensing 
Section. The Tax Collector's eight divisions are now: (1) Administration; (2) 
Business Tax; (3) Taxpayer Assistance; (4) Cashier; (5) Delinquent 
Revenue/Investigations; (6) Property Tax/Licensing; (7) Accounting; and (8) Legal. 

The Board of Supervisors authorized a total of 137 positions for the Tax Collector's 
Office in FY 1994-95 and 149 positions in FY 1998-99, including six new positions 
during the FY 1998-99 budget process. A comparison of the allocation of positions 
in FY 1994-95 and FY1998-99 are shown in the table below. 



Tax Collector Authorized Positions by Division 
FY 1994-95 and FY 1998-99 





FY 


1994-95 




FY 1998-99 










Percent of 




Percent of 


Division 




Positions 


Total 


Division Positions 


Total 


Administration 




13 


9.5% 


Administration 15 


10.1% 


Business Tax 




46 


33.6% 


Business Tax 46 


30.9% 


License 




8 


5.8% 


Taxpayer Assistance 1 1 


7.4% 


Cashier 




8 


5.8% 


Cashier 10 


6.7% 


Delinquent Revenue 


21 


15.3% 


Delinq. Revenue/ Investigations 42 


28.2% 


Real Estate 




14 


10.2% 


Property Tax/Licensing 12 


8.0% 


Investigations 




22 


16.1% 


Accounting 7 


4.7% 


Legal 




5 


3.7% 


Legal 6 


4.0% 


TOTAL 




137 


100.0% 


149 


100.0% 



Office of the Budget Analyst 



Introduction 



Acknowledgements 

We would like to thank the staff of the Tax Collector s Office for the cooperation and 
assistance they provided during the course of this study. Without their help in 
answering our questions and providing a wide variety of data on their activities, our 
work would have been much more difficult. We would further like to acknowledge 
that the Tax Collector's Office has initiated major changes in order to implement 
the recommendations of the Budget Analyst's 1995 Management Audit Report. To 
the extent that the 1995 Management Audit and this follow-up study have resulted 
in meaningful improvement, the Tax Collector's Office should receive the large 
majority of the credit. 



Office of the Budget Analyst 



Section I: Tax Collector General Operations 



Section 1.1: Accounting and Statements 

The 1995 Management Audit found that accounting and data entry functions were 
distributed throughout the divisions in the Tax Collector's Office. Also, the Audit 
found that collections efforts were hampered by the nearly four month process of 
entering Business Tax Statements into the BTS system and that a fragmented 
check control process took time away from revenue producing activities. To remedy 
these problems, the Budget Analyst recommended that a consolidated Accounting 
Division be established to improve efficiency. 

The 1995 Management Audit identified several ways in which the tracking of 
delinquent accounts could be improved, including maximizing use of the BTS 
system to facilitate calculation of interest and penalties, thereby eliminating 
manual calculation by multiple Divisions. The Budget Analyst also recommended 
that the proposed Accounting Division cross-check delinquent UPP and Business 
Tax Accounts so that taxpayers can be notified of both delinquencies 
simultaneously, and Collections Officers could pursue full payment. 

Finally, in 1995 the Budget Analyst reported that the Assessor's Office was 
responsible for substantial delays in posting reassessments in property values to 
the Tax Rolls. As a result, the Tax Collector must process numerous check returns 
and subsequent refunds, as taxpayers submit initial payments for reassessed 
amounts that cannot be accepted by the Tax Collector until they are reflected on the 
Tax Rolls. 

Our follow-up review found that the Tax Collector has taken steps to remedy the 
fragmentation of accounting functions and related deficiencies in this area by 
implementing alternative solutions to those which were recommended in the 1995 
Management Audit. The Tax Collector has established a separate accounting 
section as recommended, however the section has limited responsibilities and all 
Business Tax related accounting functions remain in the Business Tax Section. The 
Tax Collector has not centralized all accounting activities within the new 
Accounting Services Section, however, the Tax Collector has made significant 
improvements in addressing problems such as generating more timely delinquency 
notifications, better tracking of delinquent accounts, and consolidated collections 
procedures through changes in the Business Tax Section, Bureau of Delinquent 
RevenueTnvestigations Section, and Cashier Section. 



Office of the Budget Analyst 



Section 1.1: Accounting and Statements 



Additional Recommendations: 

1. The Federal Social Security Act provides that the Tax Collector may require 
a taxpayer to disclose his or her social security number for the purpose of 
establishing the identification of individuals. The Tax Collector should 
include a space for taxpayers to voluntarily provide a social security number 
on all taxpayer forms, where appropriate, in order to assist in collecting 
delinquent accounts. To be more useful to the Tax Collector's Office, the 
Assessor's Office should also collect social security numbers for unsecured 
property and share secured property social security number data with the 
Tax Collector's Office. Ultimately, the provision of a central identification 
number, such as a social security number, would enable the Tax Collector's 
Office to more quickly and efficiently identify taxpayers. 

1995 Management Audit Recommendations 

A more detailed discussion of our recommendations from the 1995 Management 
Audit and the status of each recommendation is as follows: 

Recommendation 1. 1.1: The Tax Collector should establish a separate Accounting 
Division in order to centralize account maintenance and delinquency billing. This 
consolidation will provide clear lines of responsibility for accounting tasks so that 
standards of performance can be set and actual performance can be compared with 
these standards. The Accounting Division should handle (1) statement entry for 
Business Taxes; (2) maintenance of payment and collections records on delinquent 
accounts; (3) reconciliation of Business Tax, Business Registration, License and 
Unsecured Personal Property account data with FAMIS; (4) check control and bad 
check processing for all taxes except Secured Personal Property Tax; (5) cross- 
checking of delinquent accounts to identify all taxes due and preparation of 
consolidated delinquent bills; and (6) clearance of Business Registration 
applications. 

and 

Recommendation 1.1.2: Use the Accounting Total Quality Management (TQM) 
implementation group to plan the phased implementation of consolidated 
accounting, as recommended above m Recommendation 1. 

The 1995 Management Audit documented problems with the accounting and 
data entry functions which were distributed among the divisions Tax 
Collector's Office. These problems were compounded by the fragmented check 
control process, ineffective delinquency billing procedures and ongoing 
account maintenance activities. 

Although the Tax Collector has implemented alternative solutions to those 
which were recommended in the 1995 Management Audit, significant 

Office of the Budget Analyst 



Section LI: Accounting and Statements 



improvements have been made. As recommended, a separate Accounting 
Services Section was established in July 1997 consisting of 7 authorized staff, 
however, the unit's functions and scope are more limited than recommended 
by the Budget Analyst. The Accounting Services Section has responsibility 
only for the reconciliation of overpayments and issuing refunds for Property 
Taxes and License Fees, and will soon handle these services for Business 
Taxes. In addition to the Accounting Services Section, in November of 1995 
the Tax Collector formed a 12-employee unit within the Business Tax Section 
to handle Business Tax accounting functions. 

Other functions which the Budget Analyst recommended be located in a new 
consolidated Accounting Unit are handled by the Bureau of Delinquent 
Revenue/Investigations Section. These functions include the maintenance of 
payment and collections records on delinquent accounts, cross-checking of 
delinquent accounts to identify all taxes due, and clearance of Business 
Registration applications. The Tax Collector advises that good results have 
been achieved in these areas as described in more detail in Sections III. 3, 
rV.l and rV.2 of this report. Check control and bad check processing for all 
taxes is now primarily the responsibility of the Cashier's Division, reducing 
by approximately 52 percent the volume of check control that is required by 
the various Divisions within the Tax Collector's Office. 

Recommendation 1.1.3: Implement a goal of processing all Business Tax 
statements received by the February 28 filing deadline within 30 working days, or 
by approximately April 15 of each year. Dedicate two clerical staff to full time 
scanning of statements during this 60-day period, and four clerical staff to full time 
data entry of complex statements, in order to achieve entry of all statements by 
April 15. 

The annual Business Tax Statements are due from the taxpayer to the Tax 
Collector's Office by February 28 of each year. The 1995 Management Audit 
documented that the data entry process often took up to four months, or until 
approximately July 1 of each year to complete. At that time, the Tax 
Collector's Office anticipated improving this process with the purchase of 
scanners, which could be used to quickly scan the Business Tax Statements 
and therefore relieve the data entry personnel from the time consuming task 
of entering each piece of data from each Statement. 

According to Business Tax Section staff, procedures have recently been 
changed so that those businesses that regularly pay over $50,000 in annual 
Business Taxes, approximately 560 businesses, receive priority processing. 
As a result, in 1998, these Business Tax Statements for these 560 businesses 
were completely processed within the first two weeks of March. Second 
priority is given to those non-exempt businesses that pay Business Taxes of 
$50,000 or less, or 7,500 businesses. With the assistance of three scanners, 

Office of the Budget Analyst 



Section 1.1: Accounting and Statements 



accounting staff report that they entered all of the business data, with the 
necessary reconciliation reports, by the beginning of April 1998, a significant 
improvement over previous years. 

The Tax Collector reports that the balance of the Business Tax Statements 
were processed by the Tax Collector's Office within three months, or by the 
end of May in 1998. According to the Tax Collector's Office, approximately 90 
percent of the statements filed are eligible for the Small Business Exemption 
and are therefore not accompanied by any tax payments. Although this 
procedure took until the end of May in 1997, which is later than the April 15 
deadline recommended by the Budget Analyst's Office, the priority handling 
of those businesses that pay taxes ensures that the City reconciles these 
revenue generating statements within the recommended timeframe. 

It should be noted that the number of businesses that submit an annual 
Business Tax Statement has increased from approximately 58,000 in 1995 to 
approximately 70,000 businesses in 1998, an increase of 12,000 businesses or 
almost 21 percent. In addition, processing of the Statements are handled by 
nine to ten staff, whereas previously the process required the assistance of 18 
to 20 staff, requiring the diversion of a significant number of cashiers and 
auditors who would otherwise be working on revenue generating activities. 
Furthermore, the Management Audit identified a significantly high data 
entry error rate of 6-7 percent in 1995. By using scanners to enter data, the 
current error rate has been reduced to 2.6 percent. 

Recommendation 1.1.4: Hire the full roster of authorized accounting employees. 
In particular, hire a Head Accountant. Charge this person with supervising 
statement entry data and mailing initial Business Tax delinquency notices to 
businesses by no later than May 1 of each year. 

Six new accounting positions had been approved in the FY 1994-95 budget for 
the Business Tax Section to relieve its auditing staff from clerical and 
accounting functions. However, at the time the Budget Analyst was 
preparing the Audit report in 1995, the positions had not been filled. These 
six staff have now been hired and staff the accounting unit formed in 
November 1995 within the Business Tax Section. Three additional new 
positions in the unit were subsequently authorized: one Head Accountant 
(Classification 1656) who manages the unit; one Principal Accountant 
(Classification 1654), and one newly authorized Senior Accountant 
(Classification 1652). 

At the time of the 1995 Management Audit, if a business failed to submit the 
Business Tax Statement, instead of a simple delinquency notice, businesses 
received a Notice of Determination, which calculates the estimated taxes for 



Office of the Budget Analyst 



Section LI: Accounting and Statements 



that business. In 1995 the Budget Analyst determined that a delinquent 
taxpayer would not be notified until receiving a Notice of Determination in 
the Fall, or approximately eight months after the taxes were due. Our 
follow-up review found that, since 1996, the Business Tax Division has sent 
out courtesy notices to businesses approximately eight to ten days before the 
Business Tax Statements are due to remind businesses to submit the 
required documentation and taxes before the deadline. Additionally, in June 
of 1998, the Accounting Services Unit sent a letter to taxpayers who failed to 
meet the March 1 deadline before issuing a Notice of Determination in 
August to taxpayers who remained delinquent. 

Recommendation 1.1.5: Make a high priority request to the Controller's 
Information Services Division (ISD) to complete programming of screens to permit 
the Business Tax System (BTS) to handle all records of collections activities on 
delinquent Business Tax accounts, including penalties and interest, installment 
payment arrangements, records of notification sent to delinquent taxpayers, liens 
and seizures of accounts, and legal actions. 

During the 1995 Management Audit, the Budget Analyst determined that 
there was not a centralized recordkeeping area where personnel in various 
units of the Tax Collector's agency could determine what activity has taken 
place on a particular business account. The Tax Collector's Office reports that 
it has recently installed new "comments" screens to the BTS system so that 
Tax Collector staff may record notes of activity on each business account in a 
centralized area. 

In addition, at the time this recommendation was made, the Tax Collector's 
automated collections system (CUBS) was not fully in use. The Bureau of 
Delinquent Revenue/Investigations Section now uses the CUBS system to 
keep records of collections activities on delinquent Business Tax accounts, 
including penalties and interest, installment payment arrangements, records 
of notification sent to delinquent taxpayers, hens and seizures of accounts, 
and legal actions. 

Recommendation 1.1.6: Eliminate separate record-keeping by Divisions with 
collections responsibilities. Require collections personnel to report all payment 
arrangements and payment receipts to the Accounting Division for entry to the 
system. 

On November 1, 1997, the Tax Collector established a new Check Control 
Unit within the Cashier's Division. Two employees, including a 1630 Account 
Clerk and a 1404 Cashier are assigned to this new Unit. The primary 
responsibility of the Check Control Unit is to resolve unidentified checks for 
payments of license fees, property taxes, business taxes and business 
registration fees, without referring the checks to the specific other Divisions. 

Office of the Budget Analyst 



Section LI: Accounting and Statements 



Based on records maintained by the Cashier's Division, for the four months 
between December 1997 and March 1998. the Cashier's Division forwarded a 
total of 5.172 unresolved matters to the other Divisions within the Tax 
Collector's Office. In comparison, during the four month period between 
December 1996 and March 1997, a year earlier, the Cashier's Division had 
forwarded a total of 10,693 unresolved matters to the other Divisions within 
the Tax Collector's Office. Assuming that a comparable level of unidentified 
checks were sent to the Tax Collector's Office during these two years, this 
Check Control Unit was able to reduce the amount of unresolved matters by 
approximately 52 percent. This is significant because the other Divisions had 
to assign revenue producing personnel to address these unresolved matters. 

Recommendation 1.1.7 : Work with the Assessor and the City's elected State 
representatives to effect any needed changes to the State Revenue and Taxation 
Code to enable the Assessor to release Unsecured Personal Property (UPP) owners' 
Social Security numbers to the Tax Collector, who would be required to maintain 
the confidentiality of this information. This would enable the Tax Collector to cross- 
check delinquent UPP accounts with delinquent business tax accounts to improve 
the efficiency and effectiveness of collection activities. 

In 1995. the Tax Collector and the Assessor were working with different 
computer systems that were not compatible. This problem was exacerbated 
by the fact that the Assessor maintained information using social security 
numbers, and would not release any information to the Tax Collector that 
involved social security numbers, citing restrictions in the State Revenue and 
Taxation Code. 

Based on recent amendments to Section 408(c) of the State Revenue and 
Taxation Code, the Assessor's Office has now determined that the Tax 
Collector has authority for limited access to the Assessor's Unsecured 
Personal Property (UPP) tax records for delinquency hens. However, the 
Assessor's Office reports that it maintains information only on secured 
property owners by social security number and that records of UPP owners 
use a separate account number and a social security number. Therefore, the 
change in the State Code to permit the Tax Collector to have access to 
Assessor's records does not greatly assist the Tax Collector in obtaining 
delinquent UPP account information. To be more useful to the Tax Collector's 
Office, the Assessor's Office would need to collect social security numbers for 
unsecured property. 

According to a memorandum dated June 23, 1997 from the City Attorney's 
Office, the Federal Social Security Act provides that the Tax Collector may 
require a taxpayer to disclose his or her social security number for the 
purpose of establishing the identification of individuals. Currently, the 

Office of the Budget Analyst 

10 



Section 1.1: Accounting and Statements 



Business Tax Statements have a space for businesses to voluntarily provide 
their social security number for identification purposes to the Tax Collector's 
Office. The Budget Analyst recommends that the Tax Collector include a 
space for taxpayers to voluntarily provide a social security number on all 
taxpayer forms, where appropriate, in order to assist in collecting delinquent 
accounts. Ultimately, the provision of a central identification number, such 
as a social security number, should enable the Tax Collector's Office to more 
quickly and efficiently identify taxpayers. 

Other activities have been underway to more effectively share information 
between the Assessor and the Tax Collector. A new Integrated Property 
Assessor-Controller-Tax Collector (INPACT) System is being developed to 
integrate the City's tax system for assessing, billing and collecting secured 
and unsecured Property Taxes. The new INPACT Sj T stem will also provide 
information interfaces with 20 other City departments. The first two 
implementation phases of the INPACT System, which will address unsecured 
property, are anticipated to be completed in 1999. Through this system, the 
Tax Collector will be able to receive information directly from the Assessor's 
Office, on current and delinquent unsecured property accounts. 

Recommendation 1.1.8: Continue to support and encourage efforts to automate 
the Assessor's Office procedures for entering reassessment data to the Property Tax 
Rolls. 

The 1995 Management Audit documented problems with the delay between 
the time a property owner requests a reassessment and the time the 
reassessment is completed and posted to the Assessor's Tax Rolls for use by 
the Tax Collector's Office. As a result, many taxpayers submitted checks 
based on the reassessed values, but the Tax Collector had to return the 
checks, request a new check from each taxpayer based on the original value 
of the property, and then process a refund to the taxpayer when the 
reassessed value finally showed up on the Tax Rolls. At the time, the Tax 
Collector required a staff of five Account Clerks and one supervisor to issue 
these refunds and respond to the numerous inquiries from taxpayers about 
over- or underpayments of Property Taxes. 

Staff in the Property Tax Section report that a new refund system was 
installed in November of 1997 to enable the Tax Collector's Office to process 
reassessments through the Controller's FAMIS computer system with a one 
week turnaround. The system has enabled the Property Tax Section to 
reassign one of the five Account Clerks previously assigned to this area to 
handle tax defaulted properties. Due to limited staffing in previous years, the 
Tax Collector's Office held public auctions on tax defaulted properties 
approximately every four years, as required by State law. Reassignment of an 
Account Clerk should enable the Tax Collector to hold public auctions on tax 

Office of the Budget Analyst 
11 



Section 1.1: Accounting and Statements 



defaulted property annually. At the most recent public auction 65 properties 
were sold for a total of approximately $700,000 in tax defaulted revenue. 
Holding public auctions every year instead of every four years will enable the 
City to collect such delinquent taxes more quickly. 

In addition, the new INPACT System, which is being developed by the 
Assessor, Tax Collector and Controller's Offices, will provide information for 
the Tax Collector's Office on all secured property in the City. This part of the 
system should be fully operational in early 1999 and will keep track of prior 
years' refunds approved by the Assessment Appeals Board or the Assessor's 
Office and authorized by the Controller's Office. In addition, as future 
properties are reassessed, the information will be directly entered by the 
Assessment Appeals Board or the Assessor's Office for immediate on-line 
access by the Tax Collector's Office, eliminating any delay in transmission of 
the information to the Tax Collector's Office. 



Office of the Budget Analyst 

12 



Section 1.2: Automation 



The 1995 Management Audit reported that the Tax Collector had invested more 
than S3. 75 million in new automated systems for maintaining taxpayer account 
data since 1992. At that time, the Tax Collectors Office had recently implemented 
a new mainframe Business Tax System (BTS) and Unsecured Personal Property 
System (UPP), and had begun migration from a Wang mini-computer system to a 
Local Area Network (LAN). The 1995 Management Audit findings were 
concentrated in three areas: (1) insufficient training of and communications with 
end-users of the new automated systems; (2) overly restrictive and inefficient 
security policies; and (3) a need for linkages various databases maintained by the 
Tax Collector, Assessor and Controller. 

Our follow-up review found that the Tax Collector has implemented the majority of 
the Budget Analyst's recommendations in the automation area. The Tax Collector 
now reports that the office has completed its migration to the LAN and staff have 
been adequately trained in the use of PC applications. MIS staff in the department 
has grown from one in 1995 to four in 199S and have worked to improve the office's 
automated systems. The Tax Collector advises that steps have been taken to 
increase information access to employees who need it to perform their jobs 
efficiently while adhering to procedures to protect the systems from security abuses. 

The Tax Collector is working to link its automated systems. Currently, an 
integrated system for secured and unsecured property, INPACT, is being installed 
which will link the offices of the Treasurer/Tax Collector. Assessor, Controller, and 
Recorder. The Tax Collector has implemented many of the Budget Analyst's 
recommendations for improvements to the Business Tax System (BTS), however it 
remains a labor intensive system and will not link to any of the Tax Collector's 
other systems. The Tax Collector's Office advises that options for replacement of the 
BTS, which was installed in 1991, are being studied and it is planned that the 
system will be replaced within four years. 

Follow-up Recommendations 

1. The Tax Collector's Office advises that options for replacement of the Business 
Tax System (BTS) are being studied and it is planned that the system will be 
replaced within four years. The Tax Collector should select a replacement 
system which is capable of interfacing with the other automated systems in the 
Tax Collector's Office. 



Office of the Budget Analyst 

13 



Section 1.2: Automation 



1995 Management Audit Recommendations 

A more detailed discussion of our recommendations from the 1995 Management 
Audit and the status of each recommendation is as follows: 

Recommendation 1.2.1: Obtain ISD assistance to provide all staff members with 
system-overview training on the inter-relationships between different functions of 
the automated computer systems. 

In 1995, the Budget Analyst found that (a) staff were unaware of the inter- 
relationships between the data contained in sections of automated systems 
that they were responsible for maintaining and the data contained in sections 
maintained by other employees; (b) staff were unaware of the importance of 
maintaining a high degree of accuracy and the impact of erroneous data on 
various tasks performed by other staff members; and (c) except for higher 
level administrative staff, no one had an overall view of what the BTS was 
designed to do, how it had to be maintained to function properly, and the role 
each staff person played in making sure the system was sound. 

According to the Tax Collector's Office, a significant cross-training effort has 
been implemented, and many employees have been trained in the use of 
multiple systems, particularly employees in the Taxpayer Assistance Unit. 
Additionally, the Tax Collector reports that the problem of inaccurate and 
erroneous data being entered into the BTS system has been alleviated by 
instituting a scanning verification process for the validation of raw data 
which has served to eliminate many long-standing errors. 

Recommendation 1.2.2: Provide all personnel who are responsible for the 
preparation or analysis of management reports with training in data analysis using 
the software available on the LAN. Such training should cover not only the 
requisite computer software skills, but also basic rules-of-thumb related to data 
analysis. 

In order to make full use of the capabilities of the Local Area Network (LAN) 
that had recently been installed, the 1995 Audit recommended that additional 
instruction be provided on ways in which data contained on the Business Tax 
System (BTS) and the Unsecured Personal Property (UPP) System could be 
downloaded to a PC and then manipulated using PARADOX or EXCEL to 
create management reports and reconciliation records that were being 
produced manually, if at all. 

The Tax Collector's Office has now completely migrated from the WANG to a 
LAN system. Nearly every individual in the department has received training 
in LAN-based programs such as Windows, Word, Excel, and cc:Mail. 
According to the Tax Collector, section managers and unit supervisors have 

Office of the Budget Analyst 

14 



Section 1.2: Automation 



been trained in Word, Excel and Paradox so that they can more skillfully 
process and analyze data as they prepare senior management reports. The 
Tax Collector states that now that the staff has access to the tools to produce 
such management reports a number of previously unavailable management 
reports are now generated on a monthly or as needed basis. The Tax Collector 
advises that, due to the improved technology and the skill level of its 
management staff, formal training in data analysis skills is not required. 

Recommendation 1.2.3: Require Management Information System (MIS) staff to 
coordinate with Division managers in providing follow-up assistance for each 
Division that has recently been trained on the use of a new system. This assistance 
should include physically observing staff members using the new system and 
providing instruction on the proper use, if required. 

During the 1995 Management Audit, the Budget Analyst found that not all 
staff were comfortable using certain software applications, even after they 
had received formal training. Assistance came only from other staff members, 
and staff were employing inefficient practices in order to access information 
from the system. 

Three new MIS positions have been added since the 1995 Management Audit 
was completed, for a total of four MIS staff in the Tax Collector's Office. 
Three of these employees are responsible for managing the automated 
systems at 875 Stevenson Street, while collaborating with a fourth MIS staff 
member, who is located in the Business Tax Section at 25 Van Ness Avenue. 
This fourth employee, who serves as BTS System Administrator, has 
developed several macros to enable users to navigate through screens with 
greater ease, and has trained BTS users on their use. In addition, the BTS 
System Administrator is now in the process of developing an on-line tutorial 
for BTS and plans to create a Graphical User Interface (GUI) to make the 
system more user-friendly. The Tax Collector's Office reports that more 
informal training methods to increase the sharing of information and 
communication on its automated systems have also been utilized. 

Recommendation 1.2.4: Establish user's groups for the BTS and UPP systems, as 
well as for LAN users. Membership should be composed primarily of end-users of 
the systems. The MIS staff should employ the user's groups to help the Tax 
Collector prioritize systems modifications and to help plan automation changes, as 
well as to communicate information about the systems to co-workers. 

In 1995, the Budget Analyst observed that MIS staff in the Administration 
Division relied almost exclusively on senior managers of the other Divisions 
in the Tax Collector's Office to be the conduit for on-going information related 



Office of the Budget Analyst 
15 



Section 1.2: Automation 



to automation. This practice detached end-users from the process of making 
automation work effectively in the Tax Collectors Office. 

The Tax Collector reports that the Business Tax Section holds bi-weekly end- 
user meetings for BTS system users, which are forums to explore solutions to 
those problems which have arisen during day-to-day usage of the S3 r stem. 
Additionally, the Business Tax managers, the Tax Collector, Deputy Tax 
Administrator, and DTIS managers meet bi-weekly to discuss the status and 
progress of BTS system issues and the Systems Analyst in the Business Tax 
Section have conducted periodic drop-in sessions during which employees 
might share tips and tricks for navigating the system. Staff report that a 
number of systems modifications to the BTS system by DTIS have been made 
as a result of increased usage and more sophisticated knowledge of the BTS 
S3 r stem. The Tax Collector advises that since staff are sufficiently 
comfortable with the UPP, the LAN, and CUBS, formal user groups for these 
systems are unnecessary and informal meetings are held periodically for 
these group users. 

Recommendation 1.2.5: Re-evaluate automated system security policy, to avoid 
sacrificing efficiency unnecessarily. Identify all screens that each staff person 
should be able to access in order to maintain an appropriate distribution of tasks 
within the office, and obtain access revisions as needed from ISD. If necessary, 
implement alternative security measures including requiring employees to sign 
confidentiality statements, and working with the Human Resources Department to 
develop brief training modules on confidentiality issues for line staff. 

The 1995 Management Audit documented that the Tax Collector had 
restricted access to the existing computer systems based on job duties, with 
lower paid classifications denied access to screens containing confidential 
information. Limiting access to the system prevented line staff from 
developing a global understanding of the systems they were using. 
Additionally, it led to a routine misallocation of resources, as professional 
staff were performing functions that could have been performed by clerical 
staff if they had access to the necessary computer screens. 

The Tax Collector reports that access needs are constantly being evaluated 
and refined. The Tax Collector provided the Budget Analyst with a draft copy 
of an employee confidentiality statement which will be required to be signed 
by all employees, an effort which appears to have been spurred by the Budget 
Analyst's recent inquiry, as the draft was dated July 9, 1998, the same date 
as our inquiry. The Tax Collector reports that training modules in 
confidentiality issues have not been conducted. 



Office of the Budget Analyst 

16 



Section 1.2: Automation 



Recommendation 1.2.6: Re-program the BTS system (and others, if necessary) to 
permit read-only access to specified screens for specified employees. 

In 1995, the Budget Analyst reported that, in some cases, Tax Collector staff 
only needed to view screens in order to obtain information; they did not need 
to be able to modify screens. Providing "read-only" access in such cases would 
preserve security restrictions while permitting staff to get their jobs done. 
The Tax Collector now advises that "inquiry only" screens have been 
established and are in use for the Business Tax System, suitable for 
individuals with no need to add or modify data. 

Recommendation 1.2.7 : Establish standards for use in personnel evaluation 
regarding work practices and work products that will: 1) compel staff to use the 
new technologies that have been provided; 2) require the staff to develop a 
minimum level of competence with regard to operating and understanding all of the 
computer systems used to carry out the functions of the office; and 3) encourage 
staff to seek continuing training that allows them to develop their computer skills 
and operate in an efficient manner. 

The Tax Collector's Office advises that computer proficiency has become an 
important aspect of successful job performance and is reflected in employee 
performance evaluations. All Treasurer/Tax Collector job announcements 
now include computer proficiency under the section "Desired Skills" and brief 
skill tests are conducted for potential employees. In addition, the Tax 
Collector states that mandatory computer skills training have been 
conducted for employees whose computers skills are in need of improvement. 

Recommendation 1.2.8: Continue to work with ISD to develop interface networks 
that will link the existing systems and ultimately allow an interface with the 
Controller's FAMIS database and the Assessor's database. 

The Tax Collector reports that a new integrated system for secured and 
unsecured property, called INPACT, is being installed. INPACT, which will 
link the offices of the Assessor, Controller, Treasurer/Tax Collector and 
Recorder, is anticipated to be fully operational by the year 2000. INPACT 
will replace the current Unsecured Personal Property system and will 
substantially quicken the turnaround time between taxpayer inquiry and 
response by the Tax Collector's Office. The new system will also give the Tax 
Collector stronger tools to track changes in property ownership, bill new 
owners and eliminate the current practice of hand calculating prorated bills. 

The Tax Collector has implemented many of the Budget Analyst's 
recommendations for improvements to the Business Tax System (BTS), 
however it remains a labor intensive system and will not link to anj r of the 



Office of the Budget Analyst 

17 



Section 1.2: Automation 



Tax Collector's other systems. Data from the BTS has been downloaded on a 
trial basis into the collection system (CUBS), however, the Tax Collector 
states that the challenges of interfacing the current BTS with other 
automated systems are currently prohibitive. The Tax Collector's Office 
advises that options for replacement of the BTS, which was installed in 1991, 
are being studied and it is planned that the system will be replaced within 
four years. The Budget Analyst recommends that the Tax Collector select a 
replacement system which is capable of interfacing with the other automated 
svstems in the Tax Collector's Office. 



Office of the Budget Analyst 

18 



Section 1.3: Taxpayer Assistance 



In 1995, the Tax Collector's Office provided assistance to taxpayers separately in its 
divisions by rotating staff who performed other functions within their respective 
divisions. Problems included inadequate staffing of telephones, excessive transfers 
of taxpayers from division to division, providing of incorrect information, long lines 
and communication problems due to language differences. At the time our Audit 
was conducted, the Tax Collector was taking steps to remedy these problems and 
follow the recommendations of a task force ("Task Force Bravo") convened by the 
Tax Collector. The Budget Analyst therefore recommended that the Tax Collector's 
Office establish a dedicated, knowledgeable and fully staffed centralized taxpayer 
assistance unit to improve customer service. 

Our 1998 follow-up review found that the Tax Collector's Office has made many 
improvements in this area. The Tax Collector's Office established a Taxpayer 
Assistance Unit in August of 1996, comprised of a total of eleven emploj'ees. The 
Taxpayer Assistance Unit staff have expertise in all of the various taxpayer areas 
and have been cross-trained to have a full understanding of all of the functions and 
requirements of the various divisions within the Tax Collector's Office, including 
the various computer systems. The quality of service to taxpayers can now be 
monitored, user surveys conducted and an evaluation of such service measures 
used to further improve taxpayer services. Self-service kiosks for taxpayers are 
anticipated to be operational when City Hall reopens in January of 1999. 

Additional Recommendations 

1. The Tax Collector's Office should develop an interactive voice response system 
for taxpayers to automatically generate the Business Tax Statements. This 
would significantly reduce the volume of requests from taxpayers to the 
Taxpayers Assistance Unit staff, who currently separately print these Business 
Tax Statements for each taxpayer. 

2. The Tax Collector's Office should consider installing a coin-operated self-service 
copier machine for use by the public. 

1995 Management Audit Recommendations 

A more detailed discussion of our recommendations from the 1995 Management 
Audit and the status of each recommendation is as follows: 



Office of the Budget Analyst 
19 



Section 1.3: Taxpayer Assistance 



Recommendation 1.3.1: The Tax Collector should establish a Taxpayer Assistance 
Unit with full-time service representatives, as recommended by the Tax Collector's 
Task Force Bravo. The sendee representatives should be trained to use all relevant 
computer systems and given access to all screens that could provide information 
needed by taxpayers. 

The 1995 Management Audit noted that the Tax Collector's Office provided 
assistance to taxpayers separately in the Property Tax, Business Tax and 
Licensing Divisions. The staffing for taxpayer assistance was primarily 
provided by rotating staff who performed other functions within their 
respective divisions, when not assigned to the taxpayer assistance area. This 
often resulted in inadequate staffing of the telephones, excessive transfers of 
taxpayers from one division to another division, provision of incorrect 
information, long lines and communication problems due to language 
differences. The Budget Analyst therefore recommended that the Tax 
Collector's Office establish a dedicated, knowledgeable and fully staffed 
single point of contact, or one-stop shop, to centralize taxpayer assistance and 
improve customer service. 

The Tax Collector's Office established a Taxpayer Assistance Unit in August 
of 1996, comprised of a total of eleven employees, including the Director of 
the Unit. To create the Unit, interested employees were transferred from the 
different divisions from within the Tax Collector's Office, including the 
Business Tax Division, Property Tax Division, Investigations, etc. Use of 
existing employees from the various divisions has provided the Taxpayer 
Assistance Unit with available expertise in all of the various taxpayer areas 
and has facilitated the sharing of information and cross-training of these 
employees in order to provide staff with a full understanding of all of the 
functions and requirements of the various divisions within the Tax Collector's 
Office. Training of the Taxpayer Assistance Unit has also included an 
understanding of the multiple computer systems, including the Business Tax 
System (BTS), the Property Tax System and Microsoft Office97, so that 
Taxpayer Assistance Unit staff would have the ability to access information 
stored in all of these data files. 

Recommendation 1.3.2: Immediately implement the task force recommendations 
regarding installation of self-service work stations for taxpayers, with basic 
information on how to complete tax forms provided in key languages. 

The idea of self-service work stations, or kiosks, originally proposed by the 
Tax Collector's Office, has been expanded by the Mayor's Office to include 
most other City departments. As originally envisioned, such a system would 
provide Tax Collector information on how to start a business in San 
Francisco, Fictitious Business Name search files, the various forms required, 
schedule of fees, and a calendar of due dates and deadlines. As currently 

Office of the Budget Analyst 

20 



Section 1.3: Taxpayer Assistance 



envisioned, such a system would also enable taxpayers to pay their business 
or property taxes with credit cards or allow residents to pay their water bills 
to the V, ater Department, receive residential parking permits from the 
Department of Parking and Traffic or obtain a dog license from the 
Department of Animal Care and Control. 

According to Mr. Steve Nelson of the Department of Administrative Services, 
it is anticipated that such a system, through internet technology, will become 
operational after City Hall reopens in January of 1999. At a later date, self- 
service kiosks or personal computer access would be available at each of the 
City's branch libraries. This system is anticipated to be available for users in 
English, Spanish or Cantonese. Cost details on such future systems are not 
currently available. 

Recommendation 1.3.3: Develop overview training in the BTS and UPP computer 
systems, and institute follow-up training, as recommended in Section 1.2 on 
Automation. Continue to work with ISD to create networks between tax databases. 

As reported in detail in the Automation Section 1.2 of this report, the Tax 
Collector's Office have cross-trained selected staff in the use of the BTS and 
UPP systems, including those in the new Taxpayer Assistance Unit. In 
addition, efforts have been made to make the existing automated systems 
more user friendly and to ease cross checking of taxpayer accounts between 
the systems. 

Recommendation 1.3.4: Implement recommendations made earlier in this 
management audit regarding centralization of accounting, consolidation of license 
fee billing with Business Registration and Property Tax billing, and changing tax 
estimation methodology to make business tax determinations more realistic. 

The status of these recommendations is discussed in Section 1.1 Accounting 
and Statements, Section II. 1 Licensing, and Section rVM Delinquent 
Collections Process: Business Tax of this report. 

Recommendation 1.3.5: The supervisor of the proposed new Taxpayer Assistance 
Unit should develop and monitor measurements of quality of service to taxpayers, 
including wait time, use of self-service facilities, etc. 

The 1995 Management Audit cited the importance of monitoring the success 
of improvements undertaken by the Tax Collector's Office through the use of 
objective measures. 

In an effort to assist the staff in more promptly responding to taxpayer 
inquiries, an automated telephone bank was installed in the Taxpayer 
Assistance Unit in October of 1996. at an estimated cost of $44,500. All bills 

Office of the Budget Analyst 
21 



Section 1.3: Taxpayer Assistance 



issued by the Tax Collector's Office currently list the Taxpayer Assistance 
Unit's telephone number. As a result of this automated system, the Director 
of the Taxpayer Assistance Unit has been able to develop and monitor 
various measurements of quality of service to taxpayers, such as the number 
of telephone calls received, the duration of wait time for each call, the 
number of calls waiting and the length of time for the completion of calls. The 
Director reports that the Taxpayer Assistance Unit received approximately 
28,000 telephone calls between January 1 and March 31, 1998. 

The Director has established a primary goal of 20 seconds to answer each 
taxpayer call. The Director reports that, depending on the time of day, 50 
percent to 84 percent of the calls are answered within this 20-second time 
period. However, the Director reports that during exceptionally busy periods, 
such as the last week of February, which is just prior to the Business Tax 
Statements due date of February 28 th , the Taxpayer Assistance Unit can 
rarely meet the 20 second goal, due to the large volume of calls. This is 
despite the fact that the Director diverts auditors from the Business Tax 
Division to assist the Taxpayer Assistance Unit, during these busiest periods. 
The Director reports that approximately 40 percent of the calls received 
during this period were simply requesting a Business Tax Statement form. 

An interactive voice response system which was purchased for $64,000 in 
1996 enables taxpayers who come into the Tax Collector's Office to input 
their Lot and Block number to automatically generate a Property Tax bill. 
The Tax Collector's Office should begin to develop a similar interactive voice 
response system for taxpayers to automatically generate the Business Tax 
Statements. This could significantly reduce the volume of requests from 
taxpayers to the Taxpayers Assistance Unit staff, who currently separately 
print these Business Tax Statements for each taxpayer. If 30 to 40 percent of 
the requests to the Taxpayers Assistance Unit were handled through such a 
system, as estimated by the Director of the Taxpayer Assistance Unit, this 
could free up her staff to respond to more difficult taxpayer concerns, and 
enable audit staff to remain on audit responsibilities during even the busiest 
times. 

In addition, the Tax Collector's Office should consider installing a coin- 
operated self-service copier machine for use by the public. Based on 
discussions with representatives from the Public Library, the Library 
provides copier machines for the public to use at $.15 per copy, based on a 
contract with a vendor, who provides the machine, supplies and maintenance 
to the Library free of charge and pays the Library ten percent of the revenue. 
The vendor collects the remaining 90 percent of the revenue. Since the Tax 
Collector's staff currently make the copies for individual taxpayers and do not 
currently charge for making these copies for the public, installing a copier 
machine would reduce staff time spent on these activities and generate minor 

Office of the Budget Analyst 

22 



Section 1.3: Taxpayer Assistance 



additional annual revenue for the Tax Collector, based on approximately 
7.278 copies that were estimated to be made by the Tax Collector's Office m 
1997. Installation of such a self-service copier machine would also enable the 
Taxpayer Assistance Unit staff to more efficiently be used instead of 
spending considerable time making copies for members of the public. 

As discussed above in Recommendation 1.3.2. the self-service kiosk facilities 

have not yet become operational, so that there are no measurements 
regarding their success. 

Recommendation 1.3.6 : The supervisor of the proposed new Taxpayer Assistance 
Unit should implement, on an on-going basis, a brief user survey that asks for open- 
ended suggestions about how the Tax Collector could improve service to taxpayers. 

In addition to objective measurements, the 1995 Management Audit reported 
on the need to obtain subjective input and feedback from taxpayers who use 
the Tax Collector's services. 

In response, a Taxpayer Service Survey was conducted between January and 
March of 1998 and included questions regarding the speed of the sendees, the 
helpfulness of Tax Collector employees, the understanding of the problems, 
the courteousness of employees and the overall rating of the Tax Collector 
services. In addition, an open-ended section inviting compliments, comments 
or suggestions from the taxpayer was included. A total of 596 responses were 
received. Based on the survey results tabulated by the Tax Collector's Office, 
86 percent of the respondents rated the Taxpayer Assistance Unit services as 
excellent or good. Another three percent rated the services as satisfactory and 
11 percent rated the services as fair or poor. Of those rating the services poor, 
almost ten percent indicated that the speed of the services was the primary 
problem. 

Recommendation 1.3.7: The supervisor of the proposed new Taxpayer Assistance 
Unit should evaluate the sendee measures and the survey results. Discuss the 
results and means for improvement regularly with the staff of the Taxpayer 
Assistance Unit, and include a section reporting on Taxpayer Assistance in the Tax 
Collector's Annual Report. 

The Director of the Taxpayer Assistance Unit indicates that both the sendee 
measures and the results from the taxpayer survey are regularly transmitted 
to the Taxpayer Assistance Unit staff. Although the suneys do not contain 
individual Tax Collector employees' names on the forms, on occasion a 
respondent writes in the Taxpayer Assistance Unit staff person who assisted 
them, such that this information can be directly relayed to that staff person. 
The FY 1996-97 Annual Report from the Treasurer/Tax Collector includes a 
section on Taxpayer Assistance, and highlights the improvements made to 



Office of the Budget Analyst 

23 



Section 1.3: Taxpayer Assistance 



this new Unit within the Tax Collector's Office, although it does not report on 
the specific results from the surveys. 



Office of the Budget Analyst 

24 



Section II: Consolidation and Separation of Licensing 
Section II. l: Licensing 

The 1995 Management Audit found that the License Division prepared and mailed 
a separate bill for each license, even if an individual or business owed more than 
one license fee. Also, the property tax bill and the business registration bill are 
prepared and mailed separately from licenses, so that most individuals and 
businesses receive more than one bill from the Tax Collector each year. The Audit 
recommended that the Tax Collector reorganize its licensing functions, by 
eliminating the License Division and merging these activities into other divisions, 
and begin issuing consolidated bills. It was estimated that the reallocation of 
licensing responsibilities would result in improved customer service and reduced 
administrative costs of $262,142 the first year and $487,622 in following years. 

The Tax Collector's Office has consolidated Rent Board fees and Apartment and 
Hotel License fees with Property Tax bills. These now appear on a consolidated 
Property Tax bill as special assessments, and the Tax Collector's Office estimates 
that the number of separate billings sent to property owners has been reduced by 
70,000. Furthermore, placement of the Rent Board fees on the Property Tax bill 
has significantly reduced the Rent Board fee delinquency rate from approximately 
40 percent delinquency to less than two percent. 

In April of 1998, the Tax Collector's Office eliminated the License Division by 
merging a portion of these activities with the Property Tax Division. The Tax 
Collector's Office has issued a consolidated Property Tax bill, as recommended. 
However, the recommended elimination of the License Division was premised on 
the recommendation that the Tax Collector's Office consolidate the Business 
Registration bill with the Business License fees. To date, the Tax Collector's Office 
has not consolidated the Business Registration bill with the Business License fees. 

Additional Recommendations 

1. Although the Tax Collector does not feel that License and Business Tax 
information systems are compatible and thus ready to be merged, the Budget 
Analyst still believes that there would be considerable benefits to the Tax 
Collector's Office and the business taxpayer to begin working toward 
consolidating these activities. 

Additional annual revenue of $25 to $500 per business could be realized by the 
City in registration revenue alone, if a consolidated License Division identified 
businesses that the Business Tax Division has not identified. Gross receipts or 
payroll taxes would also be increased. Furthermore, the City's policies to 
enhance public health and safety would be better served by consolidation 



Office of the Budget Analyst 
25 



Section II.l: Licensing 



because unlicensed businesses would be identified and inspected by the user 
departments, such as the Department of Public Health or the Fire Department. 

2. The Tax Collector should request, initially, that the primary enforcement 
Departments, such as the Department of Public Health, Department of Public 
Works, Police Department and Fire Department meet with the Tax Collector's 
Office, in conjunction with the City Attorney's Office, to collectively identify 
problems with coordinating the license fees required from businesses throughout 
the City. Steps should then be taken to coordinate, review, simplify and revise 
the necessary City license fee ordinances for businesses in the City. 

1995 Management Audit Recommendations 

A more detailed discussion of our recommendations from the 1995 management 
audit and the status of each recommendation is as follows: 

Recommendation II.l.l and II. 1.6: The City Attorney should identify all 
legislative changes necessary to issue a consolidated property and business tax bill. 
The Board of Supervisors should approve any other necessary legislative changes 
recommended by the City Attorney. 

In August of 1995, the Board of Supervisors approved a supplemental 
appropriation for $372,000 for the City Attorney's Office to create four new 
positions in order to identify legislative changes needed to revise the City's 
Tax Code. In December of 1997, the Board of Supervisors approved eight 
ordinances (Files 127-97-10 through 127-97-17), recommended by the City 
Attorney's Office and the Tax Collector's Office to standardize regulations 
related to the City's Business Tax Code and related business. The revisions to 
these ordinances also eliminated inconsistent provisions, outdated language 
and confusing regulations to enable the public to more easily comply with the 
City's regulations and improve the Tax Collector's Office's ability to collect 
the City's tax revenues. These changes affected the City's Transient 
Occupancy Tax, Parking Tax, Utility Users Tax, Emergency Response Fee, 
Stadium Operators Tax, Payroll Expense Tax and Gross Receipts Tax. 

In August of 1995, the Board of Supervisors also approved legislation (File 
97-95-36) to amend the City's Administrative Code to provide for 
consolidation of the Rent Stabilization and Arbitration fees with the Property 
Tax bill. Beginning in FY 1997-98, the Tax Collector added the apartment 
license and hotel license fees to the Property Tax bill, for further 
consolidation. 

In response to the recommended consolidation of Business Registration fees 
and Business Taxes with business licenses, the Tax Collector's Office reports 
that the purpose for collecting license fees and Business Taxes are 

Office of the Budget Analyst 

26 



Section II. 1: Licensing 



incompatible. According to the Tax Collector's Office, license fees are a 
compliance tool for the enforcement departments, such as the Department of 
Public Health or the Police Department, while the Business Registration fees 
and Business Taxes are revenue generators for the City. In addition, the 
billing cycles and payment schedules vary for the business licenses and the 
taxes. Furthermore, the Business Tax System is already extremely labor 
intensive for the Tax Collector's staff and adding license fees to this system, 
even if these fees relate to the same businesses that the Tax Collector's Office 
collects taxes and fees from separately, would further complicate an already 
complex and inefficient system. 

As a result, the Tax Collector's Office has recently merged the License 
Division with the Property Tax Division. The Tax Collector's Office indicates 
that this is intended to be a temporary measure in order to separate the 
License Division from the Taxpayer Assistance Unit and to allow time to 
focus on revising and simplifying the License Fee ordinances in the City. The 
Tax Collector should request, initially, that the primary enforcement 
Departments, such as the Department of Public Health, Department of 
Public Works. Police Department and Fire Department meet with the Tax 
Collector's Office, in conjunction with the City Attorney's Office, collectively 
identify problems with coordinating the license fees required from businesses 
throughout the City. Steps should then be taken to coordinate, review, 
simplify and revise the necessary City license fee ordinances for businesses in 
the City. 

Recommendations II. 1.2. II. 1.8 and II. 1.9: The Board of Supervisors should 
amend the FY 1996-97 Salary Standardization Ordinance in order to: (a) Transfer 
four positions from the License Division to the Business Tax and Property Tax 
Division, including the transfer of one 1630 Account Clerk and one 1408 Principal 
Clerk from the License Division to the Property Tax Division and one 1630 Account 
Clerk and one 1634 Principal Account Clerk from the License Division to the 
Business Tax Division and (b) establish two new temporary 1404 Clerk positions, 
through the transfer of one 1404 Clerk position from the License Division to the 
Property Tax Division and the creation of one 1404 temporary Clerk position in the 
Business Tax Division. An amendment to the Annual Salary Ordinance to eliminate 
three existing positions is a policy decision, based on whether (1) the Tax Collector's 
justification for the use of these positions in other Divisions; and (2) the Board of 
Supervisors prefers that such reductions be accomplished through attrition. 

The 1995 Management Audit recommended that four positions (two 1630 
Account Clerks, one 1634 Principal Account Clerk and one 1408 Principal 
Clerk) be transferred from the License Division to the Business Tax and 
Property Tax Divisions m order to consolidate the activities of the License 
Division with these other Divisions. In addition, the 1995 Audit 
recommended that one 1404 temporary Clerk position be transferred from 

Office of the Budget Analyst 
27 



Section II.l: Licensing 



the License Division to the Property Tax Division and that one new 1404 
temporary Clerk position be created for the first year to act as customer 
service representatives in order to assist the public until taxpayers become 
accustomed to the new consolidated systems in the Property Tax and 
Business Tax Divisions. 

These transfers would result in three positions remaining in the License 
Division: one 1410 Chief Clerk, who acted as the License Division Manager 
and two 1406 Senior Clerk positions, which the Budget Analyst determined 
to be a policy decision whether they be eliminated after the License Division 
was consolidated with the Property Tax and Business Tax Divisions. The 
1995 Audit reported that these three positions cost the Tax Collector's Office 
$140,390 in annual salary and benefits. 

In FY 1996-97, when the Rent Board fees were added to the Property Tax 
bill, the Tax Collector's Office transferred one 1408 Principal Clerk from the 
License Division to the Property Tax Division, as recommended by the 
Budget Analyst's Office. On April 1, 1998 the Tax Collector's Office 
transferred the remainder of the License Division to the Property Tax 
Division with the transfer of two 1630 Account Clerks and one 1406 Senior 
Clerk. The one 1634 Principal Account Clerk, which the Budget Analyst's 
Office recommended be transferred became part of the new Taxpayer 
Assistance Unit, acting in a senior supervisory capacity. In addition, 
regarding the three positions which the Budget Analyst's Office 
recommended be eliminated: (1) the one 1410 Chief Clerk position was 
converted into an AB26 Director of Taxpayer Assistance to head up the new 
Taxpayer Assistance Unit, which was created in 1996; (2) one 1406 Senior 
Clerk was also transferred to the new Taxpayer Assistance Unit and (3) one 
1406 Senior Clerk was transferred to the Property Tax Division on April 1, 
1998, as mentioned above. As a result of such transfers, no positions were 
eliminated and the Tax Collector's Office did not realize any of the potential 
savings identified. 

Recommendation II. 1.3: The Board of Supervisors should amend the FY 1997-98 
Salary Standardization Ordinance to reflect the reduction of the two temporary 
positions after one year. 

As reflected above in Recommendation II. 1.2, the 1995 Audit recommended 
that two 1404 temporary Clerk positions be created for one year to assist the 
public until taxpayers become accustomed to the new consolidated License 
Division within the Property Tax and Business Tax Divisions. The Audit 
recommended that these positions should be eliminated in the ensuing years. 

However, as discussed above, the Tax Collector's Office did not fully 
consolidate the License Division within the Property Tax and Business Tax 

Office of the Budget Analyst 

28 



Section II. 1: Licensing 



Divisions, such that these two 1404 temporary Clerk positions were not 
created for one year and then eliminated. Instead, two temporary positions 
were assigned to the Taxpayer Services Unit during the peak periods. 

Recommendation II.1.4: The Board of Supervisors should amend the FY 1996-97 
budget, in conformance with the recommendations contained in the Management 
Audit report. 

The 1995 Management Audit recommended that the FY 1996-97 budget be 
reduced by a total of $309,492 to reflect the elimination of the License 
Division, as follows: 

Object 130-Materials and Supplies by $30,826; 
Object 190-Other Non-Personal by $180,510; 
Object 318-Buildmg Repair by $2,502; 
Object 340-Controller-DAT by $44,933; 
Object 350-Reproduction by $958; 
Object 352-City Mail Service by $49,763 

These reductions represented approximately 80 percent of the previous 
expenditures by the License Division. The remaining 20 percent was to be 
transferred to the Business Tax Division to support expenditures that would 
not be consolidated onto another tax bill. 

Since the License Division was never consolidated or transferred to the 
Business Tax Division, the Tax Collector's Office did not realize these 
operational savings identified by the Budget Analyst's Office. The Tax 
Collector's Office reports that they will be reducing their FY 1998-99 printing 
budget by approximately $10,000 and their materials and supplies budget by 
approximately $9,000, for a total FY 1998-99 budget reduction of 
approximately $19,000, as a result of the License Division consolidation. 

Recommendations II. 1.5 and II. 1.12: The Board of Supervisors should amend the 
Administrative Code to standardize due dates for the consolidated bills. The Tax 
Collector should implement consolidated billing. 

The 1995 Management Audit reported that in order to consolidate the DPW 
and Rent Board fees with the Property Tax bills, the Board of Supervisors 
would need to amend the City's Administrative Code to standardize the 
separate due dates to require that the DPW and Rent Board fees are due on 
the same day as the first property tax due date. In addition, the Board of 
Supervisors would need to amend the City's Administrative Code in order to 
standardize all businesses licenses due dates to be consistent with a 
consolidated Business Registration bill. The 1995 Management Audit also 
identified numerous improvements, such as reduced duphcation of effort, 

Office of the Budget Analyst 
29 



Section II.l: Licensing 



unified information systems, enhanced customer service and increased 
collections, that would result if consolidated billing occurred in the Tax 
Collectors Offices. 

In August of 1995, the Board of Supervisors approved an ordinance (File 97- 
95-36) to amend the City's Administrative Code to enable the Rent Board fees 
to be consolidated with the Property Tax bills. Similarly, DPWs apartment 
house and hotel license fee ordinances were amended in 1997 to enable these 
fees to be consolidated with the Property Tax bills. These fees now appear on 
a consolidated Property Tax bill as special assessments, and the Tax 
Collector's Office estimates that this consolidation resulted in a reduction of 
approximately 70,000 separate billings being sent to property owners by the 
Tax Collector's Office. 

However, to date, the Tax Collector's Office has not amended the City's 
Administrative Code to standardize business licenses to be consolidated with 
the Business Registration bill. Although the Tax Collector, as discussed 
above, does not feel that License and Business Tax information systems are 
compatible and thus ready to be merged, the Budget Analyst still believes 
that there would be considerable benefits to the Tax Collector's Office and the 
business taxpayer to begin working toward consolidating these activities. 

Additional annual revenue of $25 to $500 per business could be realized by 
the City in registration revenue alone, if a consolidated License Division 
identified businesses that the Business Tax Division has not identified. Gross 
receipts or payroll taxes would also be increased. Furthermore, the City's 
policies to enhance public health and safety would be better served by 
consolidation because unlicensed businesses would be identified and 
inspected by the user departments, such as the Department of Public Health 
or the Fire Department. 

Recommendation II. 1.7: The Board of Supervisors should amend the Rent 
Ordinance to eliminate the requirement that the Tax Collector mail four reminder 
notices to taxpayers delinquent in their Rent Board fee. 

For delinquent Property Tax bills, the Tax Collector is required to mail two 
overdue notices to taxpayers before the bill becomes delinquent and liens are 
automatically filed. However, in 1995, the Budget Analyst noted that the 
Rent Ordinance required that four reminder notices be mailed to landlords 
delinquent in paying the Rent Stabilization and Arbitration fee. In order to 
consolidate these bills, the Budget Analyst recommended that this Rent 
Board ordinance requirement be eliminated so that taxpayers would receive 
two notices for any and all property tax bill delinquencies. 



Office of the Budget Analyst 

30 



Section II. 1: Licensing 



V\ ith the inclusion of the Rent Board fees as a special assessment on the 
Property Tax bill, the requirement that taxpayers receive four reminder 
notices was eliminated. All laws applicable to the collection and enforcement 
of Property Taxes are now applicable to the collection and enforcement of the 
Rent Board fee special assessment. The Rent Board reports that they are now 
receiving approximately $125,000 of additional Rent Board fees since FY 
1996-97, an increase of 6.5 percent for a total of approximately $1,910,000 of 
revenue for the City. According to the Tax Collector s Office, placement of the 
Rent Board fees on the Property Tax bill has significantly reduced the 
delinquency rate from approximately 40 percent of landlords who previously 
received at least one late reminder notice to the current less than two percent 
delinquency on the payment of the Rent Board fees. 

Recommendation II. 1.10: The Tax Collector should eliminate the License 
Division. 

The 1995 Management Audit recommended that the Tax Collector issue (1) a 
consolidated Property Tax bill, including property taxes, the Rent 
Stabilization and Arbitration fee and Department of Public Works license 
fees and (2) a consolidated Business Registration bill, including the Business 
Registration fee, all Fire Department and Department of Public Health 
license fees and most Police Department license fees. These consolidations 
would leave approximately five to ten licenses, which are paid by individuals, 
which were recommended to be transferred to the Business Tax Division for 
administering. Such consolidations and transfers would result in the 
elimination of a separate License Division within the Tax Collector's Office. 

On April 1, 1998, the Tax Collectors Office eliminated the License Division 
by merging these activities with the Property Tax Division. As discussed 
above, the Tax Collector's Office has issued a consolidated Property Tax bill, 
as recommended by the Budget Analyst's Office. However, the elimination of 
the License Division, as recommended by the Budget Analyst, was premised 
on the previous recommendation that the Tax Collector's Office consolidate 
the Business Registration bill with the Business License fees. To date, the 
Tax Collector's Office has not consolidated the Business Registration bill with 
the Business License fees. 

Recommendation II. 1.11: The Tax Collector should direct the Controller's ISD or 
an outside vendor to create a combined billing system for a consolidated business 
registration and property tax bill. 

The Tax Collector advises that, where possible, it has made efforts toward 
consolidated billing. For example, the number of license fee billings have 
been reduced by 66 percent since 1995 by consolidating rent fees, apartment 
house and hotel fees with the Property Tax bills. However, the Tax Collector 

Office of the Budget Analyst 
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Section II.l: Licensing 



advises that to consolidate the billing system for secured taxes and/or 
unsecured taxes with business registration is not practical, due to the major 
differences between State regulations governing propert} 7 taxes and those 
that apply to business registration. The Tax Collector states that the 
interface and integration challenges would far outweigh any benefit derived 
from attempting to consolidate these two processes. 



Office of the Budget Analyst 
32 



Section II.2: Dog Licenses 



The 1995 Management Audit documented that both the Department of Animal Care 
and Control and the License Division of the Tax Collector's Office issue initial dog 
licenses, upon application by the dog owner. The License Division of the Tax 
Collector's Office then bills individuals and collects revenues for the dog license 
renewals. However, neither the Department of Animal Care and Control nor the 
Tax Collector conducted an Animal Licensing Program that more aggressively 
identifies pet owners and requires them to license their animals. Instead, these 
Departments issue dog licenses solely on customer-initiated contacts. Of a currently 
estimated total of approximately 100.000 dogs in San Francisco, only approximately 
ten percent are registered. Furthermore, the Audit found that San Francisco 
charged a dog license fee considerably below the average charged by other Bay Area 
jurisdictions. 

Our follow-up found that since 1996, the Department of Animal Care and Control 
has included proposals in each fiscal year's budget to take over the administration 
of the Dog License function from the Tax Collector's Office, as recommended. 
However, the proposed transfer has not been approved by the Mayor's Office. 
Furthermore, the Tax Collector's Office advises that since they do not budget a full- 
time position to process dog licenses, they cannot reduce their staff as 
recommended. However, a current review of the tasks and staff required to process 
dog licenses by the Tax Collector's Office indicates that a total of approximately 
3,333 hours, requiring 1.6 FTE positions are presently allocated to these activities. 
The Department of Animal Care and Control indicates that they have not been able 
to take over the recommended Dog Licensing functions because the Department has 
not been permitted to increase their staff, as had been recommended. 

In November of 1996, the Board of Supervisors approved an increase in the annual 
dog license fees from $12 to $16 for unaltered dogs and from $6 to $8 for altered 
dogs. 

Additional Recommendations 

1. The Tax Collector's Office has not transferred dog licensing functions to the 
Department of Animal Care and Control, as recommended in the 1995 Audit. 
The Budget Analyst continues to recommend such a transfer and related staffing 
and budget adjustments, which are supported by the Department of Animal 
Care and Control. A current review of the costs indicate that a total of 
approximately $80,000 of salary and related fringe benefits and another 
approximately $10,000 for materials and supplies, for a total of approximately 
$90,000 are related to the processing of dog licenses by the Tax Collector's Office. 



Office of the Budget Analyst 

33 



Section II. 2: Dog Licenses 



2. The Board of Supervisors recently approved two ordinances that would (1) 
require that veterinarians in San Francisco provide the names and addresses of 
pet owners to the Tax Collector's Office on dogs that receive rabies vaccinations 
and (2) impose a penalty of not less than $25 nor more than $50 for violation of 
this provision. Administrative responsibility for contacting the identified dog 
owners and issuing the licenses would continue to be under the Tax Collector's 
Office. The Budget Analyst recommends that if existing dog licensing functions 
are transferred to the Department of Animal Care and Control, as recommended 
above, the recently approved legislation should be amended to require that such 
additional administrative responsibilities be similarly transferred from the Tax 
Collector's Office to the Department of Animal Care and Control. 

1995 Management Audit Recommendations 

A more detailed discussion of our recommendations from the 1995 management 
audit and the status of each recommendation is as follows: 

Recommendation II. 2. 4: The Department of Animal Care and Control should 
implement an Animal Licensing Program, in conformance with the 
recommendations contained in this report. 

The 1995 Management Audit found that neither the Animal Care and 
Control nor the Tax Collector conduct an Animal Licensing Program that 
would identify pet owners and require them to license their animals. As a 
result, relatively few of the City's dog population were licensed. Under the 
procedures in place, the Department of Animal Care and Control generally 
issued the initial dog license and annual renewals were administered by the 
Tax Collector's Office. 

The Tax Collector's Office response to this recommendation was that since 
their Department has nothing to do with either the staff or the budget of the 
Department of Animal Care and Control, this recommendation is not 
relevant to them. However, the Tax Collector's Office continues to be 
responsible for collecting the ongoing dog license fees for the Department of 
Animal Care and Control. 

The Department of Animal Care and Control reports that they would like to 
create an effective Dog Licensing Program, as recommended by the 1995 
Audit. In fact, since 1996, the Department of Animal Care and Control has 
included proposals in its annual budgets to take over the administration of 
the Dog License functions from the Tax Collector's Office. However, the 
proposed transfer has not been approved by the Mayor's Office. The Mayor's 
Budget Office indicates that they will again review the transfer of the Dog 
License function from the Tax Collector's Office to the Department of Animal 
Care and Control during the upcoming year. 

Office of the Budget Analyst 

34 



Section II. 2: Dog Licenses 



Recommendation II.2.1: The Board of Supervisors should amend the 
Annual Salary Ordinance to: 

(a) Reduce the number of authorized FTEs in the License Division of the Tax 
Collector's Office from 12 to 11, unless the Tax Collector provides justification to 
retain this position in another Division. Whether the position reduction should 
be done through attrition is a policy matter. 

(b) Increase the number of authorized permanent 3372 Deputy Animal Control 
Officers in the Department of Animal Care and Control from one to two. 

(c) Increase the number of temporary 3372 Animal Control Officers in the 
Department of Animal Control from zero to one for a total of 11 Animal Control 
Officers, granting that position permanent status after one year if the 
Department shows that the number of dog licenses has increased by 10.000. 

The 1995 Management Audit recommended that all of the functions of dog 
licensing be transferred from the Tax Collector's Office to the Department of 
Animal Care and Control. Recommendations 11.2.1(a), (b) and (c) addressed 
the specific personnel changes that would be required to enable an effective 
dog licensing program to be instituted by the Department of Animal Care and 
Control. 

The Tax Collector's Office responds that, since they do not budget a full-time 
position to process dog licenses, they cannot reduce their staff as 
recommended in the 1995 Audit. However, a current review of the tasks and 
staff required to process dog licenses by the Tax Collector's Office indicates 
that a total of approximately 3,333 hours and 1.6 FTE positions are presently 
allocated to these activities. Under the current organization, the license 
activities of the Tax Collector's Office have been transferred to the Property 
Tax Division. 

The Department of Animal Care and Control indicates that they have not 
been able to assume the additional dog licensing functions, because the 
Department has not been able to increase their staff, as had been 
recommended. The Budget Analyst continues to recommend that such 
changes be implemented, in order to more efficiently and effectively license 
dogs m San Francisco and raise additional revenues to support the ongoing 
costs of a Dog Licensing Program. 



Office of the Budget Analyst 

35 



Section II. 2: Dog Licenses 



Recommendation H.2.2: Amend the FY 1995-96 budget to: 

(a) Reduce the Tax Collector's budget by $47,145 including $37,710 in Permanent 
Salaries and Mandatory Fringe Benefits and $9,435 in Materials and Supplies. 

(b) Increase the Department of Animal Care and Control's budget by $100,000, to 
be funded by the Tax Collector's reduced costs plus increased dog license fees (to 
the extent certified by the Controller), in conformance with the 
recommendations contained in this report. 

Recommendations 11.2.2(a) and Ob) addressed the specific budgetary changes 
that would be required to enable an effective dog licensing program to be 
instituted by the Department of Animal Care and Control. The 1995 Audit 
identified $47,145 within the Tax Collector's Office to administer dog license 
fees in FY 1994-95, based on a ratio of dog licenses to other licenses. The 
Audit recommended that these funds be used to fund part of the $100,000 
increase recommended for the Animal Care and Control's budget. The 
balance, or $52,855, needed to fully administer the dog licensing program 
was to be supported by increased dog license fees, as recommended in the 
Audit report. 

However, as discussed above, the Tax Collector's Office did not transfer these 
functions to the Department of Animal Care and Control. As a result, the Tax 
Collector did not reduce its budget and the Animal Care and Control 
Department was not able to increase their budget, as recommended. The 
Budget Analyst continues to recommend such budget adjustments, which are 
supported by the Department of Animal Care and Control. In fact, a current 
review of the costs indicate that a total of approximately $80,000 of salary 
and related fringe benefits and another approximately $10,000 for materials 
and supplies, for a total of approximately $90,000 are related to the 
processing of dog licenses by the Tax Collector's Office. 

Recommendation II. 2. 3: Approve an ordinance requiring veterinarians to provide 
lists of the names and addresses of pet owners to the Department of Animal Care 
and Control. 

Two ordinances (Files 98-1402 and 98-1403) were recently approved by the Board of 
Supervisors which would (1) require that veterinarians in San Francisco provide 
the names and addresses of pet owners to the Tax Collector's Office on dogs that 
receive rabies vaccinations and (2) impose a penalty of not less than $25 nor 
more than $50 for violation of this provision. This should enable the Tax 
Collector's Office to then solicit dog owners to obtain a current dog license, 
providing increased revenue and better control of the City's dog population. 
According to the Department of Animal Care and Control, the City of Oakland, 
Contra Costa County, San Mateo County, Marin County, Sonoma County, Napa 

Office of the Budget Analyst 

36 



Section II. 2: Dog Licenses 



County. Solano County and Mendocino County have similar ordinances. 
However, under these new ordinances, administrative responsibility for 
contacting the identified dog owners and issuing the licenses would be placed in 
the Tax Collectors Office. The Budget Analyst recommends that if existing dog 
licensing functions are transferred to the Department of Animal Care and 
Control, as recommended above, the recently approved legislation should be 
amended to require that such additional administrative responsibilities be 
similarly transferred from the Tax Collector's Office to the Department of 
Animal Care and Control. 

Recommendation II. 2. 5: The Commission of Animal Control and Welfare should 
approve an increase in fees for dog licenses to be commensurate with Bay Area 
jurisdictions, in accordance with the recommendations contained in this report. 

The 1995 Management Audit found that San Francisco charged an annual 
dog license fee of $12 for unaltered dogs and $6 for altered dogs, while other 
Bay Area jurisdictions charged up to $25 and $11, respectively. Based on a 
survey of 11 jurisdictions in the Bay Area, the Budget Analyst recommended 
that annual dog license fees be increased from $12 to $19 for unaltered dogs 
and from $6 to $9 for altered dogs, which were the average annual license 
fees charged by the 11 surveyed jurisdictions m 1995. 

In November of 1996, the Board of Supervisors approved an increase in the 
annual dog license fees from $12 to $16 for unaltered dogs and from $6 to $8 
for altered dogs. In addition, the Board of Supervisors approved senior citizen 
dog license fees of one-half these amounts and approved a fee structure which 
provides an incentive to purchase multi-year licenses for dogs. Based on these 
annual fee increases, revenues for dog licenses issued by the Tax Collector's 
Office increased from $41,726 in FY 1994-95 to $53,260 in FY 1996-97, an 
increase of $11,534 or 28 percent. 



Office of the Budget Analyst 
37 



Section III: Business Taxes and Registration 

Section III.l: Business Tax Auditing 

The 1995 Management Audit found that, in addition to performing audit functions, 
the Business Tax Audit Division was engaged in collections activities which instead 
should be performed by a Collections Division. We also found that audit 
productivity had declined substantial!}- over a three year period due to a variety of 
factors. Finally, we concluded that the selection of businesses to audit was carried 
out on an ad hoc basis, without careful prioritization, and that improved internal 
controls in the areas of audit assignments and account servicing were needed. 

Our 1998 follow-up review found that the Tax Collector's Office has made some 
improvements in this area, such as transferring the main responsibility for 
identification of unregistered businesses and collection of delinquent business taxes 
from the Business Tax Section to the Bureau of Delinquent Revenue and 
establishing the Taxpayer Assistance Unit to routinely answer business tax 
inquiries. However, many issues have still not been addressed. The following list of 
recommendations detail those areas that still need improvement. 

Additional Recommendations 

1. The Budget Analyst continues to recommend that delinquent accounts identified 
by Auditors within the Business Tax Section should be forwarded to the Bureau 
of Delinquent Revenue to pursue immediate collection activities, rather than 
conducting a full audit of these businesses. 

2. The Budget Analyst continues to recommend that the Business Tax Division 
discontinue diverting auditors from their audit assignments in order to do 
accounting work within the Division. 

3. During the FY 1998-99 budget review, the Board of Supervisors approved the 
creation of three of five requested accounting positions and requested that the 
Budget Analyst review the need for the two denied positions during this audit 
update. Our review indicates that the three new accounting positions added 
during the budget process should be sufficient to fully relieve the auditors who 
are assisting the accounting staff on both a seasonal and as-needed basis. 
Therefore, the two additional accounting positions (one 1632 Senior Account 
Clerk and one 1652 Senior Accountant) requested by the Tax Collector's Office 
should not be created at this time. 

4. The Budget Analyst continues to recommend that the Chief Auditor refine the 
automated audit selection process to make full use of available information. 
Audit selection should reflect the Tax Collector's priorities in terms of the 
number selected for their revenue potential, and the number selected to achieve 
audit notoriety by auditing a representative sampling of business types. The 

Office of the Budget Analyst 

38 



Section III.l: Business Tax Auditing 



automated process should be designed to select a realistic number of audits, 
taking into account that a projected (and limited) number of escaped business 
audits, delinquent account audits and other special purpose audits will also be 
required during the year, chiefly to enable the Tax Collector to take legal action 
on these accounts. 

The Budget Analyst continues to recommend that the Tax Collector establish a 
policy regarding the balance between the audit goals of revenue maximization 
and encouragement of voluntary business taxpayer compliance. At least 15 
percent of annual audits should be selected to achieve notoriety for the audit 
program, rather than exclusively for immediate revenue maximization purposes. 



1995 Management Audit Recommendations 

A more detailed discussion of our recommendations from the 1995 management 
audit and the status of each recommendation is as follows: 

Recommendation III.l. 1: The Chief Auditor should refer delinquent and 
unregistered business accounts to the Collections Division proposed in Section IV. 2, 
rather than the audit unit of the Business Tax Section. 

and 

Recommendation HI. 1.9 : The Tax Collector should establish a step-by-step 
guideline for actions to be taken on delinquent accounts, depending upon the size of 
the account. Control referral of delinquent accounts for audit so that (1) all non- 
litigation collection activities are pursued before an audit is commenced; and (2) the 
total number of delinquent account audits per year is limited to provide balance and 
variety in the audit program. 

The 1995 Management Audit found that, in addition to regular audits, 
numerous audits were being conducted of businesses that had failed to 
register with the City and of businesses that had made significant tax 
payments in the past, but failed to pay in the most recent tax cycle, because 
such accounts would result in large revenue recoveries. The Budget Analyst 
determined that it was a waste of auditing resources to audit such delinquent 
accounts, since these were not audit functions, but were instead collection 
functions. The Management Audit recommended that such accounts should 
not be audited unless all of the regular and less labor intensive, collection 
activities failed to produce a statement and payment. The Budget Analyst 
estimated that this practice cost the City $186,235 to $1,381,573 in 
uncollected revenue in FY 1993-94. As a result, the Budget Analyst 
recommended that the Chief Auditor refer such accounts to the Collections 
Division. 



Office of the Budget Analyst 

39 



Section III.l: Business Tax Auditing 



Our follow-up review found that the main responsibility for identifying 
unregistered businesses and collecting delinquent business taxes has been 
transferred from the Business Tax Section and consolidated in the Bureau of 
Delinquent Revenue. As a result, most unregistered businesses and 
businesses that have failed to make payments in the past are now being 
handled by the Collections Division, as recommended. However, the Chief 
Auditor advises that if the Auditors within the Business Tax Section identify 
an unregistered business or a business that has failed to pay business taxes, 
the Auditors will schedule and conduct a complete audit, rather than 
referring the account to delinquent collections, as previously recommended. 

The Business Tax Section estimates that they have completed 27 audits of 
unregistered businesses and could not readily identify the number of audits 
of delinquent account businesses of the 1.169 audits completed between 
January of 1997 and June of 1998. The Budget Analyst continues to 
recommend that these delinquent accounts be forwarded to the Bureau of 
Delinquent Revenue to pursue immediate collection activities, rather than 
pursuing a full audit of these businesses. 

Recommendation III. 1.2: The Chief Auditor should develop a routing system to 
send a large proportion of telephone inquiries to Taxpayer Services and/or 
Accounting, thereby reducing auditor telephone duties by 50 percent. This, 
combined with the recent establishment of regular staffing for Taxpayer Services, 
would provide an additional 2 FTEs of auditor time for audits. 

and 

Recommendation III. 1.3: The Chief Auditor should require auditors to log time 
spent on phone taxpayer assistance after installation of the voicemail S3*stem. Use 
these logs to compare the cost to the City in lost audit revenue with the cost of 
hiring appropriate personnel to answer telephone questions. 

A new telephone system that included options for taxpayers to access 
recorded information was being installed at the time of the Audit in 1995. In 
1995, we found that telephone inquiries from taxpayers were being routinely 
routed to auditors. The 1995 Audit also found that a large proportion of 
telephone inquiries could and should be routed to taxpayer assistance or 
accounting personnel, rather than being handled by auditors. We suggested 
that by keeping track of the type of calls being answered and the amount of 
time spent by the auditors on these calls, the Department would be able to 
determine those calls that should be forwarded to the taxpayer assistance 
group. 

At the time of the 1995 Audit, the Chief Auditor was assigning an average of 
two auditors each day, on a rotating basis, to answer telephones. During peak 
assistance periods, more auditors would be asked to answer telephones. Two 

Office of the Budget Analyst 

40 



Section III.l: Business Tax Auditing 



auditors per da} 7 represented a 50 percent decrease (from four FTEs) in 
auditor time devoted to taxpayer assistance. The Budget Analyst 
conservatively estimated that relieving two auditors from telephone taxpayer 
assistance duties would generate additional deficiency billings of $629,536 
annually, assuming 26 audits per year per auditor. At a 68 percent collection 
rate, it was estimated that this would result in an $470,924 in annual new 
revenues for the City. 

Our follow-up found that a Taxpayer Assistance Unit was established in 
August of 1996. All telephone calls are now automatically routed to Taxpayer 
Assistance. If the Taxpayer Assistance Unit cannot answer specific business 
tax inquiries, such calls are then transferred to the Business Tax Section. 
Although the Business Tax Section does not keep logs or records of the 
number of calls received or the type of inquiries made, the Chief Auditor 
indicates that now 1.0 FTE auditor is assigned on a rotating basis to respond 
to these inquiries each day, along with their other duties, as recommended in 
the 1995 Management Audit. 

Recommendation HI. 1.4: The Chief Auditor should return the team of auditors 
now assigned to administrative duties to full-time, regular audit duties as soon as 
the new accounting staff can be trained to take over their administrative/account 
maintenance duties. This would provide an additional five full-time auditors. 

The 1995 Management Audit found that in FY 1991-92, an entire team of 
four Auditors, one Senior Auditor and one Principal Auditor, had been 
relieved of all audit responsibilities in order to perform account maintenance 
functions and other administrative tasks. To correct this, six new positions 
were authorized for the administrative and account maintenance functions in 
the Business Tax Division in the FY 1994-95 budget. These positions 
included one 1630 Account Clerk, one 1632 Senior Account Clerk, one 1654 
Principal Accountant, one 1656 Head Accountant, one 1818 MIS Specialist II 
and one 1822 Administrative Analyst. 

However, at the time of the 1995 Management Audit, the Department had 
only hired two of the six authorized new positions, resulting in the continued 
use of auditors for account maintenance and administrative functions. The 
Budget Analyst estimated that at 26 audits per auditor per year, and 
assuming an average deficiency billing of $13,318 per audit, additional 
deficiency billings of $1,731,340 would be produced, if all the auditors were 
reassigned to audit functions. A 68 percent collection rate would result in an 
estimated $1,177,311 in annual new revenues to the City. 

The Tax Collector's Office reported that the six positions approved in the FY 
1994-95 budget for administrative and accounting support were ultimately 
filled after approximately two years, enabling the Department to correct any 

Office of the Budget Analyst 

41 



Section III.l: Business Tax Auditing 



previous inefficiencies. According to the Tax Collector's Office, audit staff was 
redirected and the number of audits increased from 677 in FY 1995-96 to 970 
in FY 1996-97. However, audit revenues declined during this period from 
$11,226,923 in FY 1995-96 to $7,847,499 in FY 1996-97, as the average 
audit billing was reduced from $16,583 to $8,090. 

In the FY 1998-99 budget, the Department again requested that additional 
accounting positions be created, including one 1630 Account Clerk, two 1632 
Senior Account Clerks and two 1652 Senior Accountants, to relieve auditors 
that had been assigned to accounting functions due to an increase in the 
accounting workload. Although the Tax Collector's Office had agreed that 
they should not divert auditors from their audit assignments and stated that 
they would discontinue the practice, the Business Tax Division has continued 
to divert auditors to do accounting work within the Division. 

The Board of Supervisors approved the creation of three of the requested five 
positions and denied the approval of one 1632 Senior Account Clerk and one 
1652 Senior Accountant. The Budget Analyst indicated that we would review 
these two requested positions again during this audit update. Our review 
indicates that the additional three positions should be sufficient to fully 
relieve the auditors who are assisting the accounting staff on both a seasonal 
and as needed basis. If the 1632 Senior Account Clerk and 1652 Senior 
Accountant positions were approved, the Business Tax Division would 
ultimately use these staff to develop a new accounting system database for 
third party taxes, such as parking, utility and hotel taxes. Given the 
significant number of new positions and position upgrades that were 
approved in the FY 1997-98 budget, the Budget Analyst continues to believe 
that these two additional accounting positions should not be created at this 
time. 

Recommendation III. 1.5: The Chief Auditor should develop and enforce auditor 
performance standards requiring all auditors to complete the equivalent (in 
performance value) of 46 audits per year, instead of the 26 audits per auditor that 
was the FY 1994-95 average. 

The 1995 Management Audit found that during the five years from FY 1986- 
87 through FY 1990-91, the auditing unit completed an average of 1,057 
audits per year, or 51 audits per year, per auditor. In the following three 
years, during FY 1991-92 through FY 1993-94, the unit completed only an 
average of 320 audits per year, a nearly 70 percent decline. A productivity 
goal of at least one audit per week, allowing for vacation, holiday and sick 
leave time resulted in our recommendation of approximately 46 audits per 
year per auditor. This recommendation took into account the variations in 
audit complexity and length, such that it was recommended that the Chief 
Auditor develop a system for weighting the productivity value of audits to 

Office of the Budget Analyst 

42 



Section III.l: Business Tax Auditing 



reflect such variations. The Budget Analyst estimated that if all 18 auditors 
completed the equivalent of 46 instead of 26 audits per year, it would result 
in a total of 360 additional audits per year, generating an additional 
$4,794,480 in audit deficiency billings and an estimated $3,260,246 in 
collections for the City. However, because the Budget Analyst recommended 
that the delinquent and unregistered business accounts be handled by the 
Collections Division (See recommendation III. 1.1) instead of the Audit Unit, 
it would reduce the amount collected by the Audit Unit to approximately 
$1,314,183 in audit deficiency billings and an estimated $893,644 in 
collections for the City. 

Our follow-up review found that, including the four Principal Auditors, the 
FY 1996-97 and FY 1997-98 budgets included 25 FTE auditors. In FY 1996- 
97 a total of 970 audits were completed and, in FY 1997-98, a total of 785 
audits were completed, or an average of approximately 39 and 31 audits per 
auditor per year, respectively. Excluding the four Principal Auditors results 
in an average of 46 and 37 audits per auditor per year, respectively. These 
audits resulted in a total of $7,847,499 in audit deficiency billings m FY 
1996-97 and approximately $7.5 million in FY 1997-98. 

Recommendation III. 1.6: The Chief Auditor should refine the new automated 
audit selection process to make full use of available information. Audit selection 
should reflect the Tax Collector's priorities in terms of the number selected for their 
revenue potential, and the number selected to achieve audit notoriety by auditing a 
representative sampling of business types. The automated process should be 
designed to select a realistic number of audits, taking into account that a projected 
(and limited) number of escaped business audits, delinquent account audits and 
other special purpose audits will also be required during the year, chiefly to enable 
the Tax Collector to take legal action on these accounts. 

and 

Recommendation III.l. 10: The Tax Collector should establish a policy regarding 
the balance between the audit goals of revenue maximization and encouragement of 
voluntary business taxpayer compliance. This will establish the proportion of audits 
to be selected for their collection potential, and the proportion to be selected by 
business type to gain wider public awareness of the audit program. 

In FY 1993-94, the Business Tax Division prepared a lengthy list of selection 
criteria for audits in an attempt to computerize the selection process. 
However, the Chief Auditor did not prioritize the criteria, such that the 
Controller's ISD program selected 6,000 accounts, rather than the 500 
accounts that the Chief Auditor felt could realistically be audited in a year. 
As a result, the program was useless to the Department. At the time of the 
audit, the Chief Auditor indicated that a revised selection process was 
underway, based on 18 prioritized audit selection criteria. 

Office of the Budget Analyst 

43 



Section III.l: Business Tax Auditing 



The Business Tax Division selected 18 audit criteria and conducted an initial 
automated audit selection process in December of 1996 and a second selection 
in July of 1997. However, the program selected 5,790 accounts in December 
of 1996 and another 2.000 accounts in July of 1997. As previously reported in 
the 1995 Management Audit, this is an unrealistic number of audits to be 
conducted in a reasonable period of time. This results in the four Principal 
Auditors using their individual judgments regarding which audits they want 
to select, with little, if any improvement noted. 

The 1995 Management Audit found that the Principal Auditors applied 
informal rules of thumb to select which businesses to audit from printouts of 
the full list of business firms, along with information about each firm's tax 
payments over the past several years. Basically, the Principal Auditors, 
acting independently, were using various selection criteria that were 
designed simply to maximize revenues, with no effort to use the audit 
function to promote voluntary taxpayer compliance. This practice resulted in 
uncoordinated, possibly conflicting polic\ T decisions by staff. The incentive to 
boost audit deficiency billings to make an audit team look productive may not 
result in the best overall mix of audits. It does not appear that the procedures 
have changed significantly from this approach. Instead, tax auditing should 
be used to achieve two broad purposes: (1) to obtain revenue that would 
otherwise have been lost and (2) to improve voluntary taxpayer compliance. 
The audit selection process can be targeted to achieve such common 
Department goals. In the opinion of the Budget Analyst, at least 15 percent of 
annual audits should be selected to achieve notoriety for the audit program, 
rather than exclusively for immediate revenue maximization purposes. 

Recommendation III. 1.7: The Chief Auditor should institute a practice of rotating 
audit team alphabetic assignments even* two years, for internal control purposes. 

The 1995 Management Audit found that the auditing staff was divided into 
four teams, each headed by a Principal Auditor. Each team selected and 
performed audits of firms whose business names started with a particular 
portion of the alphabet. When the Management Audit was conducted, the 
audit teams had maintained the same alphabetic assignments for at least 
four years. Rotation of audit assignments is one effective way to guard 
against unfair treatment (whether favorable or unfavorable) of particular 
business taxpayers and thus the Budget Analyst recommended that such 
assignments be rotated even.- two years. 

The Tax Collector's Office reports that audit staff assignments were first 
rotated in 1995 and again, in November of 1997. In addition, supervision 
responsibilities have been rotated among the Principal Auditors in order to 
improve internal control. 



Office of the Budget Analyst 

44 



Section III.l: Business Tax Auditing 



Recommendation HI. 1.8: The Chief Auditor should assign all servicing and 
account maintenance of audited accounts to the Accounting and Statements Unit 
(and eventually to the Accounting and Collections Divisions). Such activities should 
no longer be carried out by auditors, to provide a check and balance mechanism that 
will minimize the opportunities for unfair or biased application of tax compliance 
efforts. 

The audit of business taxpayer accounts frequently results in deficiency 
billings: i.e., the taxpayer is found to owe more money than s/he paid at the 
time the taxes were due, and is assessed the balance, plus interest and 
penalty charges. In the professional opinion of the Budget Analyst, 
completion of an audit report should conclude an auditor's involvement with 
that account, other than to answer any questions about the content of the 
audit. However, the 1995 Management Audit found that the auditor or the 
supervising Principal Auditor would bill the taxpayer for the deficiency 
amount, make recommendations to the Chief Auditor about penalty waivers, 
set up time payment arrangements with the taxpayer, make collection- 
related contacts with the taxpayer and record all payments made to the 
account in the BTS system. The Budget Analyst therefore recommended that 
auditing functions be separated from collection activities to improve internal 
controls by providing a check and balance mechanism that would minimize 
the opportunities for unfair or biased application of tax compliance efforts. 

According to the Business Tax Division, audit deficiencies are now being 
referred to the Bureau of Delinquent Revenue (BDR) for follow-up collection. 
If necessary, the BDR staff is now responsible for negotiating an installment 
plan for payment of the taxes owed, rather than the audit staff that actually 
conducted the audit, which was the previous procedure. 

Recommendation III.l. 11: The Board of Supervisors should request a written 
analysis from the Tax Collector of any proposed tax ordinance, both in terms of the 
Tax Collector's assessment of the ordinance's impact on taxpayers and revenue 
collection, and in terms of the Tax Collector's estimate of required staffing and 
impacts on the day-to-day operations of the Department. 

The 1995 Management Audit found that during the three-year period 
between February 1992 and February 1995, a total of 21 new local 
ordinances were approved which directly affected the operations of the Tax 
Collector's Office. Of the 21 ordinances, two were initiated by the Tax 
Collector's Office and the remaining 19 were initiated by the Board of 
Supervisors or the Mayor's Office. The Department was not always consulted 
prior to an ordinance change and thus was not able to provide a detailed, 
realistic estimate of the staff or resources required to implement new 
programs. After such ordinances were approved, the Tax Collector's Office 
routinely diverted staff that would otherwise be working on ongoing tax 

Office of the Budget Analyst 

45 



Section III.l: Business Tax Auditing 



collection revenue activities. As a result, the Department was not adequately 
staffed to implement some of the changes approved and was not realizing the 
revenue potential that would otherwise have been possible. 

Although 21 ordinances were approved during the three-year period between 
1992 and 1995, only two ordinances have been approved during the three- 
year period since the Audit was completed in 1995, which directly affected 
the Tax Collector's Office. These ordinances include (1) the Garment 
Manufacturers Tax Credit and (2) the revision of the Business Tax 
Ordinances. The Tax Collector reports that his Office was directly involved 
with the development of both of these ordinances, although no supplemental 
staff or funds were allocated for the Tax Collector's Office to implement these 
new ordinances. 



Office of the Budget Analyst 

46 



Section HI. 2: Review of the City Park Audit 

In 1995, the Budget Analyst's review of an audit conducted by the audit staff of the 
Business Tax Section found that audit staff: (1) used methodology that is not 
supported by work papers, which resulted in an audited deficiency billing that was 
$35,574 less than if the existing methodology developed by the City's Department of 
Public Works (DPW) had been used; and (2) neglected to assemble the complete 
working papers necessary to establish an audit trail, to permit thorough supervision 
bj 7 senior staff auditors and to permit review by any experienced auditor. 

Our follow-up review found that the Tax Collector's Office conducted a second audit 
which reached the same conclusion as their initial audit, such that the Tax 
Collector did not bill City Park for any additional back taxes, penalties or accrued 
interest. The Business Tax Division has conducted two training courses for auditors 
and is currently rewriting audit staff procedures, but is not using outside resources, 
such as GAO documents or other sample audit policies and procedure manuals from 
the IRS and other cities. As a result, the Tax Collector's Office may not fully 
document the range and detail of audit policies and procedures. The Chief Auditor 
has also not conducted evaluations of the Principal Auditors annually based on both 
the productivity of their audit teams and the quality of the audits completed. 

Additional Recommendations 

1. The Budget Analyst continues to recommend that the Chief Auditor direct the 
1822 Administrative Analyst to assemble sample audit policies and procedures 
manuals from the IRS and other cities, as well as to consult the GAO manual of 
Government Auditing Standards. Direct this staff person to revise and enhance 
the existing audit procedural guides, and present the new guides to audit staff in 
a form which encourages the exchange of ideas regarding the implementation of 
the new procedures. 

2. The Chief Auditor should also include an evaluation of both the productivity and 
the quality of audits performed by each audit team in an annual performance 
evaluation of each Principal Auditor who supervises the audit teams. 

1995 Management Audit Recommendations 

A more detailed discussion of our recommendations from the 1995 Management 
Audit and the status of each recommendation is as follows: 



Office of the Budget Analyst 

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Section III. 2: Review of the City Park Audit 



Recommendation III.2.1: The Chief Auditor should bill City Park for an 
additional $35,574 plus penalties and accrued interest. 

The 1995 Management Audit found that the audit staff of the Business Tax 
Section of the Tax Collector's Office conducted an audit of City Park, which 
has parking operations at Candlestick Park, to verify that City Park was 
paying all taxes due the City. The Budget Analyst found that the Tax 
Collector's audit staff used methodologies which resulted in reduced audited 
deficiency billings of S35.574, plus penalties and accrued interest. 

According to the Tax Collector's Office, the initial results reached by the 
Business Tax Section auditors were reasonable and fair and based on 
sufficient, competent and relevant evidence. In addition, the Tax Collector's 
Office reports that a second audit of City Park was conducted, which reached 
the same conclusion as their initial audit. As a result, the Tax Collector's 
Office did not bill City Park for any additional back taxes, penalties or 
accrued interest. 

Recommendation III. 2.2 : The Chief Auditor should direct the 1822 
Administrative Analyst to assemble sample audit policies and procedures manuals 
from the IRS and other cities, as well as to consult the GAO manual of Government 
Auditing Standards. Direct this staff person to revise and enhance the existing 
audit procedural guides, and present the new guides to audit staff in a form which 
encourages the exchange of ideas regarding the implementation of the new 
procedures. 

The 1995 Management Audit found that, as part of the City Park audit, the 
Tax Collector's audit staff neglected to assemble the complete working papers 
necessary to establish an audit trail and to permit thorough supervision by 
senior staff auditors. The Budget Analyst also found that the existing 
procedural guidelines for auditors in the Tax Collector's Office, while helpful, 
did not provide clear policies regarding acceptable documentation, working 
papers and tests of reasonableness. Nor did they address issues such as 
handling of challenges to audit methodology or conclusions, and standards for 
audit review and supervision. These problems underscored the need for the 
Tax Collector's Office to establish uniform procedures to be used in 
conducting all future audits. Once established, it was recommended that 
these audit procedures be presented to the Tax Collector's audit staff in a 
forum which encourages the audit staff to ask questions and exchange ideas 
regarding the implementation of the new procedures. 

The Administrative Analyst in the Business Tax Division reports that she is 
still in the process of working with the audit staff to rewrite their procedures. 
However, as part of this process, the Administrative Analyst has not 
assembled GAO documents or other sample audit policies and procedures 

Office of the Budget Analyst 

48 



Section III.2: Review of the City Park Audit 



manuals from the IRS and other cities, as recommended in the Management 
Audit. Instead, the Business Tax Division is rehi.ng on input from the 
existing Principal Auditors regarding what the procedures should be, which 
may not fully document the range and detail of audit policies and procedures. 

Recommendation IH.2.3: The Chief Auditor should provide auditors with ongoing 
in-house training in audit procedures, at least on a biennial basis. 

and 

Recommendation IH.2.4: The Chief Auditor should direct the Administrative 
Analyst or a Principal Auditor to maintain a central manual of administrative 
decisions and case law related to San Francisco business taxes. The person 
responsible for this manual should provide each auditor with an annotated index of 
its contents, to be updated as necessary. 

The 1995 Management Audit found that, in addition to establishing audit 
procedures and conducting an initial training session, as recommended above 
in III. 2.1, the Tax Collector's audit staff should receive on-going training in 
such audit procedures. These training sessions should occur, at a minimum, 
on a biennial basis. As part of this ongoing auditor training program, a 
central manual of administrative decisions and case law related to San 
Francisco business taxes should be available and updated for reference by the 
auditors. 

In May of 1997, the auditors received a training course entitled Audit 
Working Paper Training and in March of 1998, the auditors attended a 
training course entitled The Audit Process. In addition to the audit staff, 
other Tax Collector staff indirectly involved in the audit process attended 
these classes. The Administrative Analyst within the Business Tax Division 
reports that she has begun to compile copies of letters from the City 
Attorney's Office regarding administrative decisions and case law relating to 
Tax Collector's issues, which the Budget Analyst reviewed. 

Recommendation HI. 2. 5: The Chief Auditor should include an evaluation of the 
quality of audits performed by each audit team in the annual performance 
evaluation of the Principal Auditors who supervise the teams. Review a random 
sample of audits (and accompanying working papers) from each audit team each 
year as part of the evaluation process. 

The 1995 Management Audit found that the Audit Unit within the Business 
Tax Section had four Principal Auditors. These four positions had minimal 
direct audit responsibilities; their responsibilities were primarily supervisory. 
In conjunction with the recommendations contained in Section III.l to 
improve audit productivity, the Budget Analyst also recommended that the 
Chief Auditor evaluate the Principal Auditors annually based on both the 

Office of the Budget Analyst 

49 



Section III. 2: Review of the City Park Audit 



productivity of their audit teams and the quality of the audits completed by 
each team. Such evaluations of the Principal Auditors has not occurred. 



Office of the Budget Analyst 

50 



Section III.3: Business Registration 

The 1995 Management Audit found that there was no unit of the Tax Collector's 
Office with clear responsibility for identifying all businesses operating in the City 
and ensuring that they file an annual Business Registration certificate. The Budget 
Analyst estimated that the number of unregistered firms doing business in the City 
might be as low as 9,000 or as high as 53,000. As a result, the Budget Analyst 
estimated that the City was losing up to $46.8 million annually in business 
registration fees in addition to an estimated $14.3 annually in Gross Receipts and 
Payroll Taxes. It was recommended that the Tax Collector establish a Business 
Identification Unit in the Business Tax Division, with responsibility for identifying 
and registering businesses and tracking all identified businesses to ensure that 
they actually register with the City. 

Our follow-up review found that the Tax Collector's Office has made significant 
improvements in this area. The Tax Collector has placed responsibility for 
identifying and registering new and unregistered businesses with the Business 
Tax/Clearance Unit and the Investigations Unit of the Bureau of Delinquent 
Revenue/Investigations Section. According to the Tax Collector, in 1997, 
approximately 500 businesses which were not in voluntary compliance were 
registered as a result of in-house and field survey activities by this unit. 

Additional Recommendations 

1. Report to the Board of Supervisors annually about the accomplishments in the 
area of new business identification and registration, including the number of 
businesses identified and registered, total revenues from registration and total 
revenues from business taxes collected from such businesses. 

1995 Management Audit Recommendations 

A more detailed discussion of our recommendations from the 1995 Management 
Audit and the status of each recommendation is as follows: 

Recommendation III. 3.1: Establish a Business Identification Unit under the 
Business Tax Section, and hire a Limited Tenure 1832 Management Analyst to 
coordinate the Unit. 

The Tax Collector reports that it has established responsibility for identifying 
unregistered businesses with both the Clearance Unit and the Investigations 
Unit of the Bureau of Delinquent Revenue/Investigations Section. The 
Clearance Unit is staffed by seven Collection Officers supervised by a 
Collection Supervisor. The staff in the Clearance Unit are cross-trained to 
perform several functions including: (1) checking if firms that have applied 

Office of the Budget Analyst 
51 



Section III. 3: Business Registration 



for Business Registration Certificates owe the City Business Taxes or 
Property Taxes; (2) collecting delinquent business taxes; (3) collecting 
delinquent unsecured personal property taxes; and (4) surveying to identify 
unregistered businesses. The surveying methods used to identify 
unregistered businesses include in-house surveys, such as reviewing lists of 
businesses and field surveys. In addition to these in-house methods, the 
Investigations Unit currently has three investigators dedicated to performing 
field surveys and enforcement duties related to identifying unregistered 
businesses. These field surveys include in-person visits to large buildings and 
shopping districts. 

Recommendation III. 3. 2: With the Chief Auditor (manager of the Business Tax 
Division), establish performance measures and procedures for the Business 
Registration Unit, including a goal of registering at least 590 previously 
unregistered firms per year. 

As indicated in Recommendation III. 3.1 above, the 1995 Management Audit 
recommended that a new 1832 Management Analyst be hired in order to 
coordinate the activities of the recommended new Business Identification 
Unit. The Budget Analyst estimated that the revenue from at least 590 
previously unregistered firms per year would cover the cost of the new- 
position. 

Instead of creating a new Business Identification Unit, the Tax Collector has 
placed responsibility for identifying unregistered businesses with the 
Business Tax/Clearance Unit of the Bureau of Delinquent 
Revenue/Investigations Section. According to the Tax Collector, in 1997, 
approximately 500 businesses which were not in voluntary compliance were 
registered as a result of survey activities. 

Recommendation III. 3. 3: Direct the Business Identification Unit to use 
information from the Assessor's roles to identify businesses for registration. 

A new automated system, INPACT, is currently being installed. The 
INPACT system will enable the exchange of information between the Tax 
Collector, Controller, and the Assessor/Recorder. Reports on new businesses 
generated by INPACT based on information from the Assessor's Office will 
enable cross matching with the Business Tax System to identify unregistered 
businesses. 

Recommendation III. 3. 4: Direct the Business Identification Unit to use 
information from the State Board of Equalization, via the Controller's Office, to 
identify businesses for registration. 

and 

Office of the Budget Analyst 



Section III.3: Business Registration 



Recommendation III. 3. 5: Maintain contact with the IRS to enter into an 
agreement whereby that agency provides information regarding businesses in San 
Francisco. 

The 1995 Audit recommended that the Tax Collector develop information 
exchanges with other branches of government to help in identifying 
unregistered businesses operating in San Francisco. According to the Tax 
Collector, collection officers in the Bureau of Delinquent Revenue review 
periodicals (such as the San Francisco Business Times), review the seller's 
permit list provided by the State Board of Equalization, cross match various 
in-house and online databases, obtain lists of commercial renters from 
property owners and managers, search business directories and the yellow 
pages, and check referrals from other City departments. In addition, the Tax 
Collector's Office currently contracts with Hmderliter, de Llamas and 
Associates (HDL) for sales tax survey data by category for San Francisco and 
is beginning to explore a Sales and Use Tax Program with the State Board of 
Equalization and a Franchise Tax Board Program, that the City of San Jose 
is presently implementing. Staff at the Bureau of Delinquent Revenue report 
that they will continue to explore other outside links with government 
agencies and services to identify unregistered businesses in the City. 

The Tax Collector reports that it has contacted the IRS, however, the contact 
has not resulted in a significant exchange of information. Staff in the Tax 
Collector's Office report that they will continue to seek ways to collaborate 
with the IRS and to determine if other counties have had success in this area. 

Recommendation III. 3. 6: Direct the Business Identification Unit to develop a 

tracking system to permit follow-up with businesses that fail to register, and to 
permit tracking of Business Registration Fees and business taxes collected as a 
result of identification efforts. 

The Tax Collector's Office reports that, with the installation of the new CUBS 
collections tracking system, they now have an effective way to follow-up with 
businesses that fail to register and to track the amount of fees and taxes 
collected as a result of these identification efforts. 

Recommendation III. 3. 7: Direct the Business Identification Unit to transfer all 
accounts for which registration and tax statements, with payment, are not 
immediately forthcoming to the Accounting Division, which should initiate standard 
collection notifications (as outlined in Section IV. 2) and, if necessary, refer the 
account to the Collections Division. 

The 1995 Management Audit recommended that a new Accounting Unit be 
established which would send out routine collections notices before referring 
a delinquent account to the Bureau of Delinquent Revenue for more time 

Office of the Budget Analyst 

53 



Section III. 3: Business Registration 



consuming and costly collections efforts. The Tax Collector has not allocated 
this responsibility to its new Accounting Division, instead, once a business 
has been identified it is entered by the Business of Delinquent Revenue into 
the new CUBS system which tracks and monitors the account and 
automatically generates collections notices. 

Recommendation III. 3. 8: Direct the Audit Unit to conduct desk reviews of 
business Payroll and Gross Receipts Tax statements, and to select only a limited 
number of such accounts for audit, based on the size and complexity of the account, 
and the appearance of inaccuracy in the statements. 

As discussed in Section III. I Business Tax Auditing (Recommendations 
III. 1.6 and III. 1.10) of this report, the Budget Analyst recommends that the 
Tax Collector's Office further refine the audit selection process to achieve a 
more consistent approach to identifying those businesses that will be audited 
each year and establish a policy regarding the balance between audit goals of 
revenue maximization and encouragement of voluntary business taxpayer 
compliance. 

Recommendation III. 3. 9: Report to the Board of Supervisors annually about the 
accomplishments of the Business Identification Unit, including the number of 
businesses identified and registered, total revenues from registration and total 
revenues from business taxes collected from such businesses. 

A review of the FY 1996-97 Tax Collector's annual report to the Board of 
Supervisors found that this information is not being reported by the Business 
Tax/Clearance Unit of the Bureau of Delinquent Revenue. This information 
should be included in the annual report to the Board of Supervisors. 
According to the Bureau of Delinquent Revenue's policies and procedures 
manual, for statistical purposes investigators prepare a weekly report of 
unregistered businesses identified and contacted, and the amount of any 
payments received so this information should be readily available. 

Recommendation III. 3. 10: The Board of Supervisors should approve legislation 
prohibiting any City department from providing services to businesses that cannot 
show proof of Business Registration. 

The Tax Collector has not initiated any new legislation in this area, however, 
such legislation may no longer be necessary. The Tax Collector advises that 
the City will not allow bids from businesses or contracts with businesses that 
are not registered and that a staff member from the Business Tax/Clearance 
Collection Unit is stationed at the Purchasing Department to monitor this 
area. In addition, the Human Rights Commission advises that the 
Commission now checks to ensure that all businesses which receive MBE or 
WBE certification are currently registered with the City. 

Office of the Budget Analyst 

54 



Section III.4: Taxi cab Driver Status 

Taxicab drivers can either be categorized as independent contractors or as 
employees of individual taxicab companies. If they are classified as independent 
contractors, they must register with the Tax Collector and pay the City's annual 
Business Registration Fee. If they are classified as employees, the taxicab company 
with which they are associated must (1) pay the City's annual Business 
Registration Fee and (2) include such employees in their payroll totals for purposes 
of calculating the Payroll Taxes and Gross Receipts Taxes which may be due to the 
City. The amount of taxes owed would be based on the taxicab driver salary and 
benefit costs as part of Payroll Tax or drivers' fare intake as part of the Gross 
Receipts, whichever is greater. 

At the time of the 1995 Management Audit, the Tax Collector had not provided 
guidelines regarding the classification of taxicab drivers. As a result, taxicab 
companies did not include taxicab drivers' receipts (i.e., receipts are not included in 
calculating gross receipts) or payroll costs in calculating Payroll and Gross Receipts 
Taxes owed, and taxicab drivers never registered as independent contractor 
businesses and paid the Business Registration Fee. Therefore, the City was 
receiving no business tax revenues from this source. It was estimated that 
depending on whether taxicab drivers were classified as independent contractors or 
as employees, the Tax Collector would realized additional annual revenue of 
$702,750 to $1,376,700. It was estimated that, if the Tax Collector decided to collect 
retroactive payments, additional one-time revenue of $3,513,750 to $6,883,500 for 
five years of retroactive payments could be collected. 

The Budget Analyst recommended that a short checklist be developed for taxicab 
companies to use to determine whether they should classify their drivers as 
employees or independent contractors. The checklist uses key factors based on a 
1991 Court of Appeals taxicab drivers case in Santa Cruz, California. Based on the 
checklist, the classification of taxicab drivers would vary from company to company 
based on the behaviors and guidelines of the companies and drivers. 

Additional Recommendations 

1. Given the Board of Supervisors approval of the recent legislation, the Tax 
Collector's Office should carefully track the petitions submitted by taxicab 
drivers for employee status. The Tax Collector's Office can then require taxicab 
companies to report all driver earnings as part of the computation of Payroll 
Taxes owed by the taxicab companies to the City. The Tax Collector's Office 
estimates that the City would realize $769,500 in additional annual revenues 
from such Payroll Taxes. 



Office of the Budget Analyst 

55 



section III. 4: Taxicab Driver Status 



1995 Management Audit Recommendations 

The recommendations from the 1995 Management Audit and the status of these 
recommendations is as follows: 

Recommendation III. 4.1: Establish a checklist for determining the status of 
taxicab drivers as independent contractors versus employees, in conformance 
with the recommendation contained in this report, and immediately begin 
collecting these revenues. 

Recommendation III. 4. 2: The City Attorney should determine whether the 
Tax Collector has the authority to collect retroactive registration fees and 
business taxes in this case. 

Recommendation III. 4.3: The Board of Supervisors and the Tax Collector 
should make a policy decision regarding the retroactive collection of registration 
fees and business taxes, if the City Attorney determines that the Tax Collector 
has the authority to collect retroactively in this case. 

On August 13, 1996, the Tax Collector submitted a report to the Mayor containing 
several alternatives and options for consideration as to how taxicab drivers should 
be classified. This report found that although a survey conducted by the Tax 
Collector, facts and court decisions lead to the opinion that taxicab drivers in San 
Francisco are independent contractors, it is not conclusive. In addition, this report 
noted that classifying drivers as employees would be easily implemented and 
administrative costs would be minimal but that it may result in legal challenges 
and attempts to modify contracts with drivers to confer an independent contractor 
status. The Tax Collector notes that the City Attorney counseled that the Tax 
Collector has the ability to assess and collect back taxes for registration fees and 
business taxes. 

The Tax Collector therefore recommended that, in lieu of classifying drivers as 
either independent contractors or employees, the City might impose a special cab 
rental fee of $1.00 per shift which, if there are two shifts a day and 855 cabs 
operating, would amount to a maximum of $624,150 annually. The Tax Collector's 
Office advised that this option would be the easiest regulatory process to 
understand and implement, however, implementation is contingent upon the City 
Attorney's ruling that the fee is not considered a special form of a user tax. If the 
City Attorney determines that this option is not feasible, the Tax Collector had 
recommended imposing a special fee on the taxicab medallion, which would 
generate maximum annual revenues of $453,150. To date, no action has been taken 
on the recommendations contained in the Tax Collector's 1996 report. 



Office of the Budget Analyst 

56 



SECTION III.4: TAXICAB DRIVER STATUS 



However, legislation was recently approved by the Board of Supervisors (Item No. 
98-1381) which establishes procedures for taxicab drivers to petition for employee 
status and prohibits independent contractors as drivers, upon acceptance of such a 
petition. 



Office of the Budget Analyst 

57 



Section IV: Collections 



Section IV. l: Delinquent Collections Process: Business Tax 

In 1995, the Budget Analyst estimated that approximately 31 percent of all San 
Francisco businesses do not file a Business Tax Statement with the Tax Collector's 
Office as required. Our recommendations included streamlining and improving the 
notification and collection system for delinquent accounts; and increasing penalties 
for non-filers. 

Our follow-up review found that the Tax Collector has recently made many 
improvements in the notification and collection system for non-filers, including 
sending out additional notices and improving the method used to estimate 
delinquent taxes. However, the time elapsed between determination of non-filer, 
estimating the amount of taxes owed, and referral to collections has not been 
shortened. The Budget Analyst recommends that the Tax Collector continue to work 
to shorten this timeframe and thus increase the likelihood of collection. Finally, as 
recommended by the Budget Analyst, the Tax Collector submitted legislation to 
change the penalty schedule for non-filers in order to increase taxpayer compliance. 
This legislation was approved by the Board of Supervisors in late 1997. 

Additional Recommendations 

1. Staff in the Business Tax Section advise that equipment problems, the diversion 
of staff resources to other tasks, staff attrition, and unfilled positions have 
hampered their efforts to speed up the process of notifying businesses who 
neglected to submit an annual Business Tax Statement and forwarding 
delinquent accounts for collections. The Tax Collector should resolve these 
problems and shorten the timeframe for this process, thereby increasing the 
likelihood of collections. 

1995 Management Audit Recommendations 

A more detailed discussion of our recommendations from the 1995 management 
audit and the status of each recommendation is as follows: 

Recommendation IV.1.1: Calculate the amount of unpaid Gross Receipts and 
Payroll Taxes based on the type of business, the location, the estimated size and 
other relevant factors for purposes of the Notice of Determination. 

All businesses operating in San Francisco are required to annually file a 
Business and Payroll Tax Statement. If a business does not submit a 
statement, the Business Tax Division sends an estimate of the amount of tax 
owed, called a Notice of Determination. In 1995, the Budget Analyst 
determined that the Tax Collector's method for calculating the Notices of 
Determination overstated the amount of taxes owed by businesses because 

Office of the Budget Analyst 



Section IV. 1: Delinquent Collections Process: Business Tax 

the Tax Collector based these estimates on an inflated percentage, rather 
than on a more reasonable estimate. This was particularly problematic in the 
case of small businesses who qualify for the Small Business Exemption which 
allows businesses with computed tax due of less than $2,500 to be exempt 
from paying taxes. Overstating the amount that businesses owe results in a 
high volume of taxpayer complaint calls, taxpayer confusion and alarm, and 
distorts estimates of actual outstanding revenue. 

The Tax Collector reports that since 1995, it has changed its procedure for 
calculating the amount of unpaid Gross Receipts and Payroll Taxes owed by 
businesses. The amount owed is now calculated based on more reasonable 
estimates taking into account factors such as growth, ownership and business 
type, estimated number of employees and business location, instead of based 
upon inflated percentages. According to the Tax Collector, these more 
reasonable determinations have greatly reduced the volume of complaints 
from taxpayers that calculations are excessively inflated. Furthermore, in 
late 1994, the Board of Supervisors approved an ordinance eliminating the 
Small Business Exemption for those businesses that fail to file the required 
annual statement on time, an added incentive for exempt businesses to file, 
and simplifying the determination of delinquent amounts owed by small 
businesses. 

Recommendation IV. 1.2: Implement a more streamlined and effective schedule 
to collect delinquent Business Taxes immediately, such as is described in the report. 

Our audit found that the Tax Collector's schedule for pursuing businesses 
delinquent in paying their Business and Payroll Taxes meant that businesses 
could often postpone the beginning of collection procedures until over a year 
after the tax is due. This substantially reduces the Tax Collector's ability to 
collect this delinquent revenue. We recommended a more streamlined 
approach where, within a six-month period, businesses would receive two 
notices of delinquency and, after the six months, the consolidated amount of 
outstanding business taxes and other delinquent taxes would be forwarded to 
the Collections Division. 

Our follow-up review found that improvements in this area have been made. 
Beginning in 1996, the Business Tax Section began mailing reminder notices 
to taxpayers, prior to the March 1 due date, reminding them to file their 
Business and Payroll Tax Statements on time. Additionally, in 1998 the 
Business Tax Section sent a "Second Request for Statement" notice to 
businesses that had not met the March 1 filing Business and Payroll Tax 
Statement deadline. This notice was sent in June (three months after the 
March 1 deadline) and notified non-filers that they were delinquent in filing, 
without estimating the amount such non-filers owed. 



Office of the Budget Analyst 

59 



Section IV. 1: Delinquent Collections Process: Business Tax 

A third notice, Notice of Determination, containing the estimated amount of 
taxes owed by each business was mailed in August. Delinquent businesses 
are then given 45 days after the Notice of Determination has been mailed to 
submit a Business and Tax Statement and delinquent payments and 
penalties. If the statement has not been received within 45 days, delinquent 
accounts are automatically forwarded to the Bureau of Delinquent Revenue 
for collection action. The Business Tax Section reports that the number of 
determination notices required to be prepared and mailed has decreased by 
nearly 50 percent beginning in 1996. 

Although the Tax Collector's Office has made efforts to decrease the 
turnaround time between identification of a missing Business and Payroll 
Statement and increase the number of notifications a business receives, the 
Business Tax Section should continue to seek ways to shorten the time 
between the statement due date and the issuance of a Notice of 
Determination in order to increase the likelihood of collections. At the time 
of the 1995 Management Audit, the Tax Collector stated that the 
replacement of manual entry of statement data with scanners would greatly 
speed up this process. However, staff of the Business Tax Section advise that 
equipment problems, the diversion of staff resources to other tasks, staff 
attrition, and unfilled positions have hampered their efforts to speed up this 
process. 

Recommendation IV. 1.3: Impose a penalty for each violation of Part III, Article 
12B, Section 1009.2 of the Municipal Code. 

and 

Recommendation IV. 1.4: The Board of Supervisors should amend Part III, 
Article 12B, Section 1009.2 of the City's Municipal Code to indicate clearly that a 
penalty will be assessed for each incident of violation of this provision. 

The City Attorney's Office was unable to provide a clear interpretation of the 
existing Municipal Code to indicate whether the Tax Collector has the 
authority to assess penalties more than once per year. 

Our audit determined that the Tax Collector did not use his authority to 
impose a separate penalty against businesses that simply fail to file their tax 
returns. According to the City's Administrative Code, the Tax Collector may 
impose a fine of $500 for each year a business failed to do any of the 
following: (1) file a tax return, (2) provide financial information upon request, 
or (3) register as a business. The Tax Collector had an established policy of 
imposing a penalty only once per year against any given business. Our audit 
found that only 70 of the total 18,866 Notices issued in 1994, or less than 0.4 
percent of the delinquent notices issued, included an assessed penalty fee. 
The Budget Analyst recommended that an initial penalty of $500, with 

Office of the Budget Analyst 

60 



Section IV. 1: Delinquent Collections Process: Business Tax 

subsequent occurrences during the same year resulting in an additional $100 
fine would be reasonable in order to serve as an incentive for future 
compliance. 

The Tax Collector advises that it has not implemented the Budget Analyst's 
recommended policy of collecting additional penalties for each subsequent 
violation incurred during the same year. Instead, in December 1997, the 
Board of Supervisors approved an amendment to the Municipal Code which 
established a negligence penalty of $20 per day, with a minimum penalty of 
$100 and a maximum penalty of $500. The Tax Collector advised at the time 
that the amendment was submitted to the Board of Supervisors that this and 
other related penalty waiver provisions would enable the Tax Collector to 
work with small businesses to collect taxes due with greater flexibility. 



Office of the Budget Analyst 

61 



Section IV.2: Consolidated Collections Process 

The 1995 Management Audit Report cited various problems with the Tax Collector's 
methods of collecting delinquent revenue. At that time, three separate divisions of 
the Tax Collector's Office were responsible for delinquent revenue collection. If an 
accountholder owed more than one type of delinquent revenue, collections personnel 
pursued these various outstanding debts separately. The Tax Collector's Office was 
found to use labor intensive collections methods such as in-person visits before 
making phone calls and sending notifications of delinquency. Furthermore, the 
audit found that the Tax Collector had not established a prioritization system to 
ensure that accounts that would likely result in the highest return were given high 
priority. 

During this follow-up review, we found that the Tax Collector had consolidated the 
Bureau of Delinquent Revenue and the Investigations Division under one manager, 
as recommended by the Budget Analyst. Within this new Bureau of Delinquent 
Revenue/Investigations Section, personnel have been trained on the various 
automated systems to cross check and identify all delinquent taxes owed by an 
individual accountholder. Additionally, the new automated collections system, 
CUBS, automatically prioritizes delinquent accounts. These changes have resulted 
in a significantly more integrated and efficient collections process than the one in 
place during the 1995 Management Audit. Finally, in accordance with the Budget 
Analyst's recommendations, in December of 1997, the Board of Supervisors 
approved a package of ordinances that include provisions which grant the Tax 
Collector expanded powers to recover delinquent business taxes. 

Additional Recommendations 

1. During the FY 1998-99 budget review, the Board of Supervisors requested that 
the Budget Analyst evaluate the need for one new 1408 Principal Clerk in the 
Bureau of Delinquent Revenue/Investigations Section of the Tax Collector's 
Office during this audit update. The Tax Collector's Office reports that the 
position is needed because the Section will soon be taking over collections 
activities from the Trial Courts and Water Department. Our review found that 
the final agreements between the Tax Collector and the Trial Courts and Water 
Department, to take on these new responsibilities, are not yet in place. 
Therefore, it is recommended that the one new 1408 Principal Clerk position not 
be created at this time. 

1995 Management Audit Recommendations 

A more detailed discussion of our recommendations from the 1995 Management 
Audit and the status of each recommendation is as follows: 



Office of the Budget Analyst 

62 



Section IV.2: Consolidated Collections Process 

Recommendation IV.2.1: Consolidate the Investigations Division, the Bureau of 
Delinquent Revenue, and the Legal Division under a single manager, organized in 
conformance with the recommendations contained in this report. 

In 1995, three separate divisions of the Tax Collector's Office were 
responsible for delinquent revenue collection, and collection activities were 
not standardized. If an accountholder owed more than one type of delinquent 
revenue, collections personnel pursued these various outstanding debts 
separately. The Budget Analyst recommended that the Investigations 
Division, the Bureau of Delinquent Revenue, and the Legal Division should 
be consolidated under a single manager. It was recommended that, within 
the proposed consolidated Division, an Investigations Section and a Legal 
Section should be established. Employees in the Investigations Section 
should be divided into specializations - Business and Unsecured Personal 
Property tax, and medical bills - according to the resource requirements 
established by a prioritization system. However, employees should be cross- 
trained to enable a single investigator to collect from entities owing more 
than one type of delinquent revenue. 

The Tax Collector reports that the consolidation of the Investigations 
Division into the Bureau of Delinquent Revenue was accomplished in late 
1996 with good results. Staff reports that the new Bureau of Delinquent 
Revenue/Investigations Section has worked to centralize collections and 
cross-train personnel to research and collect all types of revenue. 

The Legal Section has been kept a separate entity, reporting to the Deputy 
Tax Administrator. Instead, the Tax Collector advises that a new Legal 
Oversight Committee composed of the Tax Collector Attorney, Deputy Tax 
Administrator, Chief Auditor, and the Director of the Bureau of Delinquent 
Revenue/Investigations Section has been established. The mission of this 
group is to identify specific collection-orientation functions and assign and/or 
reassign those tasks to the section most appropriately staffed to perform 
them. According to the Tax Collector, the Legal Oversight Committee has 
identified several specific non-litigation tasks, formerly performed by the 
Legal Section that could be reassigned to the Bureau of Delinquent 
Revenue/Investigations Section. In addition, the Legal Oversight Committee 
is charged with considering individual, very* high priority collection cases in 
terms of specific legal remedies available to the Tax Collector and provide 
specific collection recommendations. 



Office of the Budget Analyst 

63 



Section IV.2: Consolidated Collections Process 

Recommendation IV.2. 2: Mail two notices to delinquent accountholders 
reflecting the total outstanding amounts owed and informing them that failure to 
pay in full will result in future action by the Tax Collector. 

The Tax Collector did not have a system for issuing a consolidated bill 
containing the total outstanding amount owed. Furthermore, the Divisions do 
not automatically mail notices of delinquent accounts to debtors. Our report 
noted that the Bureau of Delinquent Revenue mailed out automated letters 
and recommended that this practice be implemented consistently for all 
delinquent revenue collections. Under the proposed reorganization, we 
recommended that each delinquent taxpayer receive at least two letters 
listing the total amount of delinquent revenue owed before more costly and 
intensive collection techniques were employed. 

Under the reorganized Bureau of Delinquent Revenue/Investigations Section, 
the Tax Collector now mails two notices to each delinquent taxpayer within 
three months of the account being referred to the Section. The Tax Collector 
maintains that the Bureau of Delinquent Revenue sends out over 22,000 
automated notices per month and that at least two notices are mailed for 
each delinquent tax bill before the investigators go into the field for in-person 
visits. Section staff report that staff in the Section are trained to cross check 
other systems, such as the BTS and UPP systems to identify all outstanding 
taxes owed by the delinquent taxpayer. Staff advise that this will be made 
easier once the Unsecured Personal Property System is merged into the new 
CUBS system, enabling the Bureau of Delinquent Revenue to generate 
notices which include UPP. 

Also, beginning in 1998, the Business Tax Section has implemented a policy 
of sending two notices to businesses who fail to file a required Business and 
Payroll Tax Statement. 

Recommendation IV.2.3: Seize the financial assets, particularly checking 
accounts, of delinquent accountholders (this recommendation may only be 
implemented for business taxes if the Board of Supervisors approves an ordinance 

allowing the Tax Collector to do so - see below). 

In 1995, the Budget Analyst reported that the Bureau of Delinquent Revenue 
seized checking accounts in order to collect delinquent hospital bills only. In 
December 1997, the Board of Supervisors approved a package of ordinances 
called the Common Administrative Provisions that includes a provision 
which allows the Tax Collector to seize any property to recover delinquent 
business taxes. The Tax Collector advises that the Bureau of Delinquent 
Revenue has identified a number of candidates for testing of a new business 
tax seizure policy. However, the Tax Collector is proceeding cautiously 
because they advise that financial assets may include inventory which would 

Office of the Budget Analyst 

64 



Section IV.2: Consolidated Collections Process 



require security measures and possibly warehousing which could prove to be 
extremely problematic. 

Staff report that a new cashiering system will be put in place in 1999, with 
features which will allow the Tax Collector to more easily identify and seize 
delinquent taxpayer checking accounts. Additionally, the new CUBS system 
provides the Tax Collector with online credit reporting access, used to locate 
and determine delinquent taxpayer assets. 

Recommendation IV.2. 4: Place liens on the person and/or property of delinquent 
accountholders automatically. 

The Tax Collector reports that liens are now being placed on businesses that 
have delinquent audit determinations. The Tax Collector reports that, as of 
January 1998, 74 business tax accounts have been sent to the Bureau of 
Delinquent Revenue for lien processing. Of these 74 accounts, 61 have made 
arrangements for installment payments and 13 business tax accounts 
actually had liens placed. 

Another change which has eased the process of placing liens on delinquent 
taxpayers was the passage of the Common Administrative Provisions enacted 
by the Board of Supervisors in 1997 which enabled the Tax Collector's Office 
to file summary judgments against taxpayers that fail to remit their taxes. A 
summary judgement is a legal judgement issued administratively by a 
County Clerk, rather than by a judge as a result of a court proceeding. The 
summary judgement places a lien on all the property of the delinquent 
taxpayer in San Francisco if payment is not made within ten days of mailing 
a notice of the tax delinquency to the taxpayer, thereby avoiding the time 
consuming and costly process of going to court to obtain judgements against 
delinquent taxpayers. 

Recommendation rV.2.5: Establish a prioritization system for the collection of 
delinquent revenue, ranking them by collectability, amount, and time limitations. 

In 1995, we reported that the prioritization systems established by the 
different divisions of the Tax Collector's Office did not necessarily ensure that 
the maximum amount of revenues are collected using existing resources. 

The Tax Collector advises that the Bureau of Delinquent Revenue, 
Investigations Unit and Legal Section operate under a system of priorities 
with which they pursue delinquencies. The Bureau of Delinquent Revenue 
has formalized procedures in the collection manual. Staff in the Department 
also report that the new CUBS system automatically prioritizes delinquent 
accounts. The Legal Section operates under established priorities which 
include trust fund accounts such as parking and hotel taxes, and audit 

Office of the Budget Analyst 

65 



Section IV.2: Consolidated Collections Process 



deficiencies. This is because of the four-year statute of limitations and 
requirements for mandatory legal representations where failure to act would 
render accounts uncollectable. Representations include rejection of creditor 
claims in probates and bankruptcies, foreclosures and other related real 
estate litigation. These established priorities are established within 
budgetary constraints. 

Recommendation IV.2. 6: Fully staff initial collections functions before allocating 
any resources to later functions, in the following order: delinquent notices, then 
seizures, then liens, then accounts assigned to individual Investigators. 

As noted above, under the consolidated Bureau of Delinquent 
Revenue/Investigations Section, a minimum of two delinquent notices are 
mailed to each delinquent taxpayer. These notices are generated through the 
CUBS tracking system. Staff report, however, that various types of 
collections activities continue to be carried out concurrently, depending on 
the judgement of the collections officer. The Tax Collector also reports that 
three new Collection Officers, hired to track unregistered businesses and 
collect delinquent business taxes (formerly a low priority in the Bureau of 
Delinquent Revenue), have been merged into the Clearance Unit of the 
Bureau of Delinquent Revenue. 

Recommendation IV. 2. 7: Issue citations demanding full payment of delinquent 
accounts or attendance at a Tax Collector's Administrative hearing, including a fine 
that fully recovers the Tax Collector's costs for issuing the citation. 

and 

Recommendation IV.2. 9: The Board of Supervisors should approve an ordinance 
enabling a limited number of Tax Collector Investigators to obtain Peace Officer 
status as an additional enforcement tool. 

At the time the 1995 Management Audit was conducted, although willful 
failure to pay delinquent taxes was a misdemeanor, the Tax Collector's staff 
had no authority to enforce such misdemeanors. 

In December 1997, the Board of Supervisors approved legislation to clarify 
the penalty section of the Municipal Code. All common administrative 
provisions and common penalty provisions in the Hotel Tax, Parking Tax, 
Utility Tax, Stadium Tax, Payroll Expense Tax, and Gross Receipts Tax 
sections were consolidated under a new Common Administrative Provisions 
section. The Common Administrative Provisions give certain classifications 
of Investigators in the Tax Collector's Office the power to issue citations and 
raised the misdemeanor penalty for persons who willfully fail to pay 
delinquent taxes after notification of delinquency from $500 to $1,000. The 
Tax Collector and the Police Department are currently working to establish a 

Office of the Budget Analyst 
66 



Section IV.2: Consolidated Collections Process 

one-day training program for Investigators to instruct them in the proper, 
legal procedures to use in issuing citations and expect the training to be 
completed sometime in 1998. 

Recommendation IV.2. 8: The Board of Supervisors should approve an ordinance 
allowing the Tax Collector to seize the checking accounts for businesses with 
delinquent business taxes. 

According to the State Revenue and Taxation Code, the Tax Collector is 
empowered to seize any property, including financial assets, such as checking 
accounts, to recover delinquent Unsecured Personal Property taxes. In order 
to implement seizure proceedings for delinquent business taxes, the Tax 
Collector requires authorization from the Board of Supervisors. 

As noted above, in December 1997, the Board of Supervisors approved a 
package of ordinances called the Common Administrative Provisions that 
includes a provision which allows the Tax Collector to seize any property, 
including checking accounts, to recover delinquent business taxes. 



Office of the Budget Analyst 

67 



Office Of The Treasurer/Tax Collector 



City and County of San Francisco 

Mailing Address: P.O. Box 7426 ♦ San Francisco, CA 94120-7426 

Street Address: S"5 Stevenson Street. 2nd Floor ♦ San Francisco. CA 94103 




October 30, 199S 



SUSAN LEAL, Treasurer 

Phone (415) 554-4478 

RICHARD A. SULLIVAN, Tax Collector 

Phone (415)554-4470 



Mr. Harvey Rose, Budget .Analyst 
San Francisco Board of Supervisors 
1390 Market Street. Suite 1025 
San Francisco, CA 94102 



Through: 



Susan Leal, Treasur 




RE: 

Dear Harvey: 



Response to Budget Analyst's Follow-up Report - 1Q/9S 



Management staff of the Tax Collection Division and I have thoroughly reviewed your 
draft report and have evaluated the recommendations and comments within it. I am 
pleased to state that in almost all cases, we concur. We are prepared to work diligently to 
implement those changes that are within our immediate control and to seek out such 
policy changes as may be needed to effect more complex changes. In a few instances, I 
offer clarification as to why we may be unable to comply in the immediate future of 
twelve to eishteen months. 



In the case of the original report, issued in the Spring of 1 995, we were able to enact the 
majority of the recommendations in that report, either in whole or in part. Tax Collection 
Division staff has expended a substantial amount of energy restructuring, reorganizing, 
refining, and redefining systems and processes in order to improve the tax operation. As a 
result, I believe that we have made significant strides toward that end. We appreciate 
your acknowledgement of that progress in your follow-up report. 

In those instances where recommendations from the 1995 report have yet to be 
implemented, we encountered time constraints associated with enacting the other major 
restructuring changes that were an outgrowth of the same report. In others, potential 
changes were affected by external factors beyond our immediate control at that time. We 
continue to work toward our mutual goal of a more effective and efficient Tax Collection 
operation. 



A few of our accomplishments to date are: 

* The Taxpayer Assistance section has been established. 

* The Bureau of Delinquent Revenue and Investigations sections have been merged 
into one. 

* A Check Control unit has been centralized in the Cashiering section. 

* Accounting Services has been established as a separate operating section. 

* A Legal Oversight Committee has been established. 

* Business Tax Audit staff has been reassigned to increase audit activity as a result 
of receiving the positions detailed in the report of 1995. 

* Business Tax filings and collections have dramatically increased since FY 94-95. 

* License file activity has been reduced by 71%. This is as a result of the 
Department billing those files falling under regulations that make them 
compatible with the Property Tax bill file. 

* A consultant has been hired to evaluate the replacement of the current Business 
Tax system. A new system will place us in a better position in the future to 
interface with the other major operating programs. 

* Licensing activities have been merged with the Property Tax function. The 
processing of refunds and bad checks for both entities has also been combined. 
The employees have been cross-trained in both Licensing and Property Tax 
activities in order to cover seasonal surges in activity. 

In the attached summary, I offer brief responses to the major points contained in your 
follow-up report of October 1998. 

Please thank the audit team, particularly Debra Newman, for conducting themselves, once 
again, in such a professional manner. 

Sincerely, 



Richard A. Sullivan 
Tax Collector 

Enc. 



69 




Response to the Budget Analyst's 
Follow-up Review of the 
1995 Management Audit 
of the Tax Collector's Office 



October, 1998 



Susan Leal, Treasurer 
Richard A. Sullivan, Tax Collector 



Treasurer/Tax Collector Department 

City and County of San Francisco 



Response to the Budget Analyst's Follow-Up Review of the 
1995 Manaeement Audit of the Tax Collector's Office 



i &* 



October, 1998 



The following are brief responses to the major points contained in the Budget Analyst's 
follow-up report of October 1998 

Section 1.1 - Accounting and Statements 

Task Force Charlie recommended total accounting activity be centralized under one manager. 
The Budget Analyst endorsed this report in his 1995 review. In implementation, it was 
decided it was more realistic to centralize payment posting and reconciliation and to leave 
Business Tax statement processing under a separate manager. The staff at Business Tax 
creates the receivable (the debit). The Accounting Services staff posts all payments (the 
credit). 

In our opinion, this change resulted in more effective internal control, i.e. separation of duties, 
resource utilization, and management span of control or accountability. 

We have established an Accounting Services section for the Division. The core responsibility 
of this section at the present time is to insure that all payments are properly posted on the 
credit side of the internal accounting process. The section is also responsible for processing 
all unallocated payments for the Business Tax section. As we reorganize task areas within our 
operation, we expect this section to take on increased responsibilities. 

This is not to be confused with a major processing unit operating within the Business Tax 
section. That unit, formerly Business Tax Accounting, has been renamed Business Tax 
Services. This new designation encompasses the broad range of billing, statement processing, 
and adjustment tasks performed by this unit. The position which manages this unit, formerly 
classified as a Head Accountant, has now been budgeted as an 1824 Principal Administrative 
Analyst. 

We certainly agree with the recommendation to modify forms to enable taxpayers to provide 
social security numbers on a voluntary basis. We have long felt that this information would 
enhance our ability to achieve compliance. 

INTACT System 

Phase I of the Integrated Property Assessor Controller Tax Collector System (INPACT) was 
activated in 1997. Phase II is projected, at the present time, to start-up in early 1999. 



71 



Response to Budget Analyst's 
Follow-up Report 



However, within a few weeks, we will be evaluating the feasibility of this schedule. We will 
then be in a better position to evaluate the potential functionality of this phase, and its 
implementation, in greater detail. 

Section 1.1.6. 

A major recommendation to eliminate or reduce check controls within our office has been 
enacted. The results have been extremely positive. According to Cashier Section's records, 
check controls had dropped 68% as of June 1998, versus a year ago. This substantial decrease 
has enabled us to better utilize our staff within the respective collections operations. At the 
same time, we have been able to make earlier response to taxpayer inquiries and to post 
payments expeditiously. 



Section 1.2 - Automation 

The Tax Collector agrees with the recommendation of the Budget Analyst that a replacement 
Business Tax system be developed, capable of interfacing with the other automated systems in 
the Tax Collector's office. We have a contract analyst, through DTIS, currently evaluating 
our Business Tax system and we anticipate that by the close of FY 98-99, we will have a 
proposal for a new system. Upon receipt of this proposal, we will submit a projection for the 
replacement system no later than the FY 99-00 final budget. Because this system must meet 
the needs of full integration with other processing systems within this office, we realize it will 
be costly. However, it should provide benefits that far outdistance the eventual expenditure. 

The Tax Collector will continue to work closely with the Assessor, the Controller, and the 
Recorder to develop the INPACT system which will provide integration of processes related 
to secured and unsecured property. 

With regard to end-user groups, it should be noted that informal meetings are held periodically 
regarding various systems such as BTS, TBA and CUBS. The 1063 Sr. Programmer Analyst 
at Business Tax conducts an informal user meeting every two weeks to address specific 
questions and problems which may have arisen. Meetings are also held with DTIS staff 
participating as-needed. Every two weeks, Richard A. Sullivan, Tax Collector and Willie H. 
Ross, Deputy Tax Administrator meet with DTIS staff and key Business Tax managers to 
discuss the needs of this very complex operation. Annual conferences are held for CUBS 



Section 1.3 - Taxpayer Assistance 

We agree that the taxpayer will be better served if a Business Tax statement can be generated 
through an interactive voice response system (IVR) similar to that presently used by the 



Response to Budget Analyst's 
Follow-up Report 



Property Tax section, with information accessed by use of social security number, FEIN 
number, or Registration Certificate number. We are exploring various possibilities. We are 
working with DTIS to allow taxpayers to download forms from our web site. We also agree 
that a coin-operated copier would benefit all concerned. 

The Budget Analyst notes that self-service workstations, utilizing Internet technology, will be 
available when City Hall reopens. It is our understanding that the City Access project has 
been delayed and that the system will not be operational until some time after January 1999. 
The Treasurer and Tax Collector's Office strongly supports the City Access concept and urges 
the City to complete the project as quickly as possible. Not only will City Access enable 
citizens to conduct City business over the Internet, it will fundamentally shift the way in 
which City departments communicate. City Access' technology has the potential to eliminate 
the fragmentation in our data systems by tying all systems together, regardless of where they 
are located or what operating system they are running. 



Section II. 1 - Licensing 

Consolidating License and Business Tax Activities 

We have been working with the City Attorney's Office to change the Payroll and Business 
Tax Ordinance, a process that is largely completed. Once this is concluded, the License Fee 
Ordinance will be revised. Both of these tasks must be accomplished in order to achieve a tax 
bill consolidation. 

One obstacle has been the fact that the purpose for collecting license fees and business taxes 
are incompatible with each other. In addition, billing cycles and payment schedules vary. 

License fees are linked to regulatory and enforcement needs of the respective departments and 
may carry penalties of business closure and fines. Often tracking requirements and/or 
renewal cycles are tied to inspections, compliance requirements, as well as character reviews. 
Finally, such licenses may be linked to either a person/business or a situs address for business 
use. An example is delinquent health permits which are referred back to Department of Public 
Health for regulatory action and not pursued through normal collection processes. 

However, the business tax does not carry with it the majority of the regulatory needs cited, for 
the tax is returned to generate revenue for the city. Therefore, a business tax requires input 
data from a taxpayer that may differ drastically from a licensee. We must insure that when we 
attempt to merge information from both files, we clearly distinguish the purpose of billing, fee 
relationships and locations. 

As we mentioned earlier, our license file has dropped from 88,204, with a total revenue of 
59,692,623 collected during FY 94-95, to 24,483, for a total revenue of 55,569,587 collected 



73 



Response to Budget Analyst's 
Follow-up Report 



during FY 98-99. This is a result of the Department's implementation of the Budget Analyst's 
recommendation to bill as many items as legally possible on the secured tax bill file. 

A major concern has been the need for matching criteria in order to enable the connection of 
accounts. Taxpayer Assistance staff are currently achieving considerable cross matching, 
working with the other sections. Distinctions among tax and license types are sufficiently 
specialized to require continued separation at this time. The Tax Collector is willing to work 
through the issues noted above with the respective enforcement and regulatory departments 
involved in order to create a better system of license reporting, tracking and linkage with other 
major files. 

In accordance with the Budget Analyst's recommendations, the Department has moved to 
identify those fees that may readily be consolidated. For example, Rent Board fees were 
added to the Secured Property Tax Roll in FY 95-96. Hotels and apartment house licenses 
were added to the FY 97-98 Secured Property Tax Roll. 

The consolidation of remaining business licenses continues as a long-range goal. Total 
consolidation may not be possible, however, because of the differences between State and 
Municipal requirements. It may be necessary to make significant adjustments to certain 
billing cycles. 

We reviewed the Budget Analyst's suggestion that the License Section be eliminated. 
Technically, we have eliminated License as a stand-alone section. However, the work of 
processing over 150 different fees and licenses still exists. Those who continue to be involved 
with the Licensing function have been reassigned as a unit under the supervision of the 
Property Tax section. 



Section II. 2 - Dog Licenses 
Transfer of dog licensing functions - 

The Tax Collector's Office agrees with the Budget Analyst's view that dog owners and the 
community at large may be better served if the entire function is transferred under the 
supervision of Animal Care and Control rather than dividing the function between the two 
departments. However, at present there is no budgeted position in the Treasurer/Tax 
Collector Department budget dedicated to processing dog license applications and renewals. 
Employees absorb the function on an as-needed basis. The estimate of time expended on this 
task is 1.0 to 1.5 FTE's annually, but much of this effort comes in the summertime from 
students in the SFUSD's Summer Youth program. 



iL. 



Response to Budget Analyst's 
Follow-up Report 



Passage of two proposed ordinances would require the Tax Collector to fund a 1424 Clerk 
dedicated to perform the current activity plus the increased workload that would result from 
compliance with the ordinance change. A temporary 1404 clerk will be required during peak 
periods to assist with processing in order to assure timely delivery of licenses before their 
expiration date. Funding would come from the anticipated increase in fees collected because 
of the linkage with the proposed legislation. The Budget Analyst may wish to recommend 
that the staffing of the Department of Animal Care and Control be increased without a 
commensurate decrease in the Tax Collector's budget. That department may also wish to 
avail themselves of the Summer Youth program to augment their efforts. 

It should be noted, however, that under any circumstance the Treasurer and Tax Collector's 
Office would serve as a cashiering outpost for those dog owners who wanted to pay their 
licensing fees at City Hall. This is consistent with our desire to create a Central Payment 
Center within City Hall. 



Section III - Business Taxes and Registration 

III. 1.1 - Recommendation that Business Tax Auditors forward delinquent accounts identified 
in the Business Tax Section to the Bureau of Delinquent Revenue for pursuit through 
collections activities rather than to conduct a full audit. 

The Tax Collector agrees with the Budget Analyst's recommendation that a full audit of 
identified unregistered businesses need not be conducted when this is clearly a collection 
activity to be performed by Bureau of Delinquent Revenue. Staff have been directed to 
discontinue this practice and avoid audits of unregistered businesses. 

HI. 1.2 and HI. 1.3 - Recommendation to discontinue diversion of auditors from their audit 
assignments. Approval of creation of 3 of 5 requested accounting positions. 

Business Tax Section requested five (5) new accounting positions in the FY 98-99 budget 
process and were granted three (3). The purpose was to release auditors who had been 
assigned to assist the Business Tax Services unit with seasonal workload and to address a 
large increase in taxpayer contacts. Accounting activities are being evaluated and prioritized 
in order to maximize efficiency once the auditors are released to their normal duties. 

III. 1.4 and III. 1.5 - Recommendation that the Chief Auditor refine the automated audit 
selection process to make full use of available information. Recommendation that the Tax 
Collector establish a policy regarding the balance between the twin audit goals of revenue 
maximization and the encouragement of voluntary business taxpayer compliance. 

The responsibility for maintaining a judicious balance between revenue maximization and 
mere compliance rests with the Principal Auditors. The Business Tax section is establishing a 



75 



Response to Budget Analyst's 
Follow-up Report 



centralized assignment system to provide an effective and objective means of selecting a 
minimum of 15% of audits for the sole purpose of achieving "notoriety". Business Tax 
Section has requested DTIS to refine the automated selection process to narrow the number of 
audits selected annually from 8,000 to approximately 1,000. 

111. 2.1 - Recommendation that the Chief Auditor should direct the 1822 Administrative 
Analyst to assemble sample audit policies and procedures manuals from the IRS and other 
cities, as well as to consult the GAO Manual of Government Auditing Standards. We 
anticipate that this recommendation will be completed by March 1999. 

The Chief Auditor has directed the Administrative Analyst to work with an outside consultant 
to develop an audit policies and procedures manual for the Business Tax Section. When the 
audit procedures manual is complete, the outside consultant will conduct training sessions for 
the audit staff. 

111. 2. 2 - Recommendation that the Chief Auditor include in the annual performance evaluation 
of each of the Principal Auditors, an evaluation of both the productivity and the quality of 
audits performed by each audit team under their supervision. 

A Principal Peer Review process was started in August 1998. The Principal Auditors will 
evaluate the quality of the audits completed by each audit team. The Chief Auditor is 
responsible for establishing criteria and performance measures for the audit teams. 

III.3 - Business Registration 

The Budget Analyst states that "the Tax Collector has placed responsibility for identifying and 
registering new and unregistered businesses with the Business Tax/Clearance unit of the 
Bureau of Delinquent Revenue/Investigations Section. In actuality, that responsibility is 
shared, albeit differently, by the Business Tax/Clearance unit and the Investigations unit. 

Collection Officers are responsible for in-house surveys which include reviewing periodicals 
and lists of businesses obtained through other agencies. Investigators perform outside surveys 
in the field by concentrating on various districts throughout San Francisco, targeting the larger 
businesses. The identification of unregistered businesses is a responsibility shared by these 
two entities at different levels of activity. 

III.3.1 . - The Budget Analyst states that "The Clearance Unit is staffed by six staff: three 
investigators (including a new investigator hired in late 1995) and three Collection Officers." 
As a result of a realignment of responsibilities, the makeup of this unit is actually as follows: 
The Clearance Unit is comprised of seven (7) Collection Officers supervised by a Collection 
Supervisor. Within the Investigations Unit, three (3) investigators are now dedicated to 
performing field surveys and enforcement duties as a significant part of their responsibilities. 



76 



Response to Budge! Analyst's 
Follow-up Report 



III. 3.3 . - It should be noted that even without relying on the installation of the INPACT 
system, the collection officers in Clearance unit perform cross matching through the UPP and 
BTS systems to identify unregistered businesses. 

HI. 3. 5 - As a point of information, two other programs are being explored: Sales and Use Tax 
Program, and the Franchise Tax Board (FTB) Flyer Program. The City of San Jose is 
presently implementing both. The Sales and Use Tax Program entails surveying businesses to 
see whether they have a valid seller's permit. If not, a report is provided to the State Board of 
Equalization and the county receives approximately 1% of any sales tax recovered. 

The FTB Flyer Program is newly implemented in San Jose. The entire business tax file is 
provided to FTB for cross matching. Any accounts that do not match the FTB files are 
summarized on a sorted list, by ownership entities, for example. FTB will then send out a 
letter on FTB letterhead along with our Department's application package, to notify the 
business owner that s/he needs to register with the City. 

Both programs need to be evaluated concerning feasibility and confidentiality issues. 

Also, we currently contract with Hinderliter, de Llamas and Associates (HDL) for sales tax 
survey data by category for San Francisco. This data is utilized and shared with Business Tax 
management for audit considerations. New sales tax permits and changes are shared with 
Bureau of Delinquent Revenue for follow-up. 

111. 3. 9 - The procedure manual for Bureau of Delinquent Revenue/Investigations Section calls 
for weekly reports to be submitted by investigators concerning unregistered businesses. 
Because this manual was distributed in 1998, meaningful statistics are not yet readily 
available to illustrate its effectiveness. Those statistics that are available will be included in 
the FY 98-99 annual report. 

111. 3. 10 - The Tax Collector agrees that other City departments have been cooperative in this 
regard. 



Section IV - Collections 

Section IV. 1 - Delinquent Collections Process: Business Tax 

The average referral time is 30-45 days after the audit tax deficiency assessment becomes 
final. (This includes the time for taxpayer appeal.) Additionally, the Business Tax/Clearance 
Unit receives and works off a list of Statements of Accounts (SOA) on a quarterly basis. 
SOAs contain delinquent business taxes, prioritized by dollar amount and sorted by alpha. In 
addition to the mass SOA printout, BTS can now generate SOAs on an individual basis. While 



77 



Response to Budget Analyst's 
Follow-up Report 



Business Tax Section continues to strive toward shortened referral time for all types of 
deficiencies, Business Tax/Clearance now routinely handles delinquent business taxes 
appearing on the quarterly SOA list which contains deficiencies that Business Tax may not be 
required to refer per their lien procedure. 

Section IV. 2 - Consolidated Collections Process 

As indicated, most of the recommendations of the Budget Analyst have been adopted. 
Consolidation of Investigations into Bureau of Delinquent Revenue has been accomplished. 
The Legal section has been kept a separate entity, however, under the supervision of the 
Deputy Tax Administrator and with the advice of the Legal Oversight Committee. Several 
non-litigation tasks have been reallocated to Bureau of Delinquent Revenue in order to direct 
the focus of Legal Section onto high priority collection matters. 

1408 Principal Clerk -- It should be noted that significant progress is being made to transfer 
account receivables from the Water Department to the Tax Collector and toward providing 
collection services to the Courts. There are additional considerations with respect to accepting 
new accounts from other City departments. Negotiation of fees for collection services 
rendered should be done in the case of new accounts which are not mandated to the Bureau of 
Delinquent Revenue by the City Charter. The current workload of the Collection Officers is 
extremely high. Each collector is assigned and is responsible, on average, for approximately 
10,000 accounts. 

While the function of payment processing has been transferred to the Check Control unit, 
collection staff is still bogged down by clerical functions, such as filing, typing, data entry, 
and compiling data for reports. The added position of 1408 Principal Clerk will be of critical 
assistance with management of receivables, preparation of reports, and payment processing 
and will substantially relieve collectors from clerical tasks, thereby allowing them to focus 
their time and energy on their primary function. We urge that the Budget Analyst recommend 
approval of this position, contingent upon execution of the final agreements in these areas. 

The Tax Collector concurs with all other aspects of this report. 

cc: Susan Leal. Treasurer 

Wilhe H. Ross. Deputy Tax Administrator 



78 




ANIMAL CARE AND CONTROL DEPARTMENT 

CARL FRIEDMAN 1200 15th STREET 

DIRECTOR SAN FRANCISCO 

CALD70RNIA 94103 

(415) 554-636-4 
_ , , ™.„ FAX (415) 554-9424 

October 1. 1998 TDD (415) 554-9704 

Ms. Debra Newman 
Budget Analyst Board of Supervisors 
1390 Market Street. Suite 1025 
San Francisco, Ca 94102 

Dear Ms. Newman: 

Thank you for the opportunity to share my comments regarding your update of the Tax 
Collector's Management Audit as it relates to dog licensing. 

As we discussed. Animal Control services in this community have been fragmented for 
many years. The San Francisco Police Department. Department of Public Health and the 
Tax Collector's Office are providing many services that I believe should be performed by 
this Department. 

Besides the small and minor changes we discussed, I agree with the recommendations by 
your office concerning the transfer of this function. However, it is extremely important 
that whoever performs this service has the proper resources to do it correctly. To that 
end. I have attached a copy of our 1998-99 Budget Program Enhancement Request to 
administer the Dog License Program. This request does not take into consideration the 
new proposed ordinance requiring Veterinarians to notify the "licensing authority" when 
a rabies vaccination is given. According to the Tax Collector's Office, they would have 
to increase their staff by 1.25 FTE (S56.099) to handle this extra paperwork. 

If you require any additional information, please call me at 554-941 1 . 

Sincerely, 




Carl Friedman 
Director 



Enclosure 

CFS:cfs/100198.doc'wd 



1998-99 Program Enhancement Request 

DEPARTMENT NAME: Animal Care and Control 
DEPARTMENT PRIORITY NUMBER: One (1) 

DEPARTMENT CONTACT NAME/PHONE NUMBER: 

Carl Friedman, 554-9411 

INITIATIVE TITLE: Administration of Dog License Program 

OBJECTIVE: To create an effective Dog Licensing Program that will increase the 
number of licensed dogs in this community and generate more funds for this Department. 

TARGETED CLIENTS: Residents of City & County of San Francisco 

SERVICE LEVEL INCREASE: Yes; it is the intention of this Agency to increase our 
revenues which may be used to defray the cost of operating this Department. More revenue 
means we will have the resources to provide additional animal control services to the 
residents of our City. 

CATEGORY: 1 and 2 

PROGRAM DESCRIPTION: 

I am providing you this Department's proposal to take over administration of the Dog 
License function from its current position under the Tax Collector's office. 

Section 10.117-87 of the Administrative Code establishes the Animal Control and Welfare 
Fund. The purpose of this fund is to receive all fees and donations of money which may be 
collected by the Animal Care and Control Department for the sale, redemption or surrender 
of impounded animals and for the care and feeding thereof and all fees collected by the Tax 
Collector for dog licenses, dog kennel licenses and cat registrations. This money is to be 
used to defray the costs of operating the Department of Animal Care and Control. 



Program Description (continuation) 



I conservatively estimate the dog population in San Francisco to be between eighty five and one hundred 
thousand. If additional staff were to be hired to handle the administrative, clerical and enforcement functions 
of implementing this program, we could sell and process many more licenses. This would provide more 
revenue and help ensure better care and control of the City's dog population. I believe the additional 
licensing revenue eventually would not only cover the added operational costs, but help fund and subsidize 
other services of this Department. 

For an effective Dog Licensing Program, we would need at least three additional staff members. They 
would consist of a program supervisor, a Shelter Service Representative and a Deputy Animal Control 
Officer for enforcement purposes. 

The following is a rough estimate on what it would cost us to administer this dog license program. The 
following personnel needs are based on the current salaries of the classifications used, their starting dates 
calculated from September 1, 1998. Since there is no current dog license supervisor position, I am basing 
this salary on a Special Assistant VI Class 1365. Whoever heads this program must have experience and 
knowledge of the applicable state and local dog licensing laws and ordinances and with the Chameleon 
H.L.P. automated license program we currently use. 

The current fees for a dog license are $16.00 for an unaltered dog, $8.00 for an altered dog and half price for 
senior citizens. Averaging the revenues with the number of licenses sold, I estimate that each dog license 
sold brings in approximately $10.00 in revenues. 

I estimate that within twelve months, we could increase the sale of dog licenses by approximately 5,000. 
This would bring in about $50,000 in new revenue for the first year. If my calculations are correct, the City 
could realize a small increase of approximately $50,000 in dog license revenues within twelve months. 

As you can see, these revenues do not cover the additional costs for the first year. The real impact will be in 
the ensuing years as these fees are renewable and will be compounded by additional license sales each year. 

I believe that, conceptually, it makes sense for us to administer this program. If left under the Tax Collector, 
I feel that the number of dog licenses sold will never reach its full potential. (Please see attached Summary 
of Program Costs.) 



81 



ATTACHMENT B 



SUMMARY OF PROGRAM COST 





FY 1998-99 


Ongoing 


Sources: 






Subtotal Sources 


$ -0- 


$ -0- 


Uses: 






00100 1365, Special Assistant VI 


$ 36,673 


$ 44,109 


00100 3372 Animal Control Officer 


$ 26,474 


$ 31,842 


00100 1434 Shelter Service Representative 


$ 23,957 


$ 28,814 


01300 Fringes 


$ 24,072 


$ 28.958 


0400 Materials/Supplies/Equipment 


$ 45.000 


$ 30.000 


Net General Fund Subsidy 


$156,176 


SI 63.723 


Total FTE's 


2.50 


3 



New Positions: 1365 Special Assistant VI, 3372 Animal Control Officer, 1434 Shelter 
Service Representative starting September 1, 1998. SI 11,1 76 

Operating Expenses: $45,000 

Facilities Maintenance, and Equipment: None 



82